LONDON: Zinc prices jumped on Tuesday on concern over potential shortages resulting from falling inventories and possible reductions in smelter output because of high energy prices.
Three-month zinc on the London Metal Exchange (LME) climbed 2.9% to $3,618 a tonne by 1000 GMT, having touched its lowest in more than a month on Monday.
LME zinc has shed 20% over the past two months along with other industrial metals, hit by concern over a slowdown in top metals consumer China and potential global recession.
“Even though you have this quite bearish expectation about slowing demand and weakening economic activity, some of these metals markets are suffering from quite acute tightness,” said Tom Mulqueen, head of research at Amalgamated Metal Trading.
“Today that’s reflected in zinc, with the drawdowns from warehouses, shortages in the U.S. and Europe, and a deficit forecast for the year.”
LME data on Tuesday showed owners of more than 18,000 tonnes of zinc in warehouses in Malaysia gave notice that they want to withdraw the material, reducing available stocks by 30%.
LME copper could fall into $8,530-$8,669 range this week
In April sources told Reuters that commodity trader Trafigura and others were moving to take large amounts of zinc out of LME-approved warehouses in Asia.
The sources said at the time that Trafigura was bringing the metal from Asia to Europe to replace lost production at Belgium’s Nyrstar, in which it has a majority stake.
Premiums for physical metal in Europe have soared owing to zinc smelter cutbacks in the face of power prices that hit three-month highs on Tuesday.
The premium for cash LME zinc over the three-month contract spiked to $76.25 a tonne, its strongest since December and up from $14.30 a week ago, indicating short-term shortages of LME inventories.
Also supporting metals prices was a weaker dollar index, which makes commodities priced in the U.S. currency cheaper for buyers using other currencies.
Workers at Chile’s state-owned Codelco, the world’s largest copper producer, will start a nationwide strike on Wednesday, a union official said.
LME copper added 0.3% to $9,004 a tonne, aluminium fell 0.1% to $2,525, lead gained 1.6% to $2,102, nickel was little changed at $25,745 and tin was up 1.5% at $31,275.
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