Zinc falls as weaker Chinese demand outweighs supply fears

LONDON: Zinc prices fell for a second session on Monday as expectations of weaker demand from Chinese steel mills overpowered signs that the market is short of metal.

Most other industrial metals also fell on caution over the outcome of trade talks between US President Donald Trump and Chinese President Xi Jinping later this week that could influence demand for commodities.

Benchmark three-month zinc on the London Metal Exchange (LME) closed down 1.3 percent at $2,487 a tonne after falling 2.4 percent on Friday.

The metal used to galvanise steel was under pressure after demand concerns drove Chinese steel prices down more than 5 percent to a five-month low.

Zinc fell 2.5 percent on the Shanghai Futures Exchange (ShFE) , its biggest one-day drop since August. China is the biggest consumer of zinc and other industrial metals.

But prices are supported by stockpiles at 10-year lows and shortages of immediately available metal, said ING analyst Warren Patterson.

"Fundamentals (for zinc) are constructive, at least in the short term," he said.

ZINC SPREAD: The premium of cash zinc to the three-month contract fell to $63 from last week's two-decade high of $97 but remains unusually high, suggesting a shortage of nearby supply.

STOCKS: Stocks of zinc in LME-registered warehouses have halved to 121,550 tonnes since August, a 10-year low, while inventories in ShFE warehouses at around 35,000 tonnes are down from almost 160,000 tonnes in March.

TECHNICALS: Zinc has fallen below its 50- and 100-day moving averages, worsening its technical picture.

SPECULATORS: Speculative investors are neutral on zinc, with brokers Marex Spectron estimating their net short position at 1.4 percent of active contracts.

DEFICIT: The roughly 13.5 million-tonne-a-year zinc market had a 305,000 tonne deficit over January-August, according to the International Lead and Zinc Study Group.

SUPPLY: Zinc prices have fallen 30 percent from a February high as investors anticipated a surge in refined zinc output after a clutch of new mine openings.

But delays in that new supply due to bottlenecks at smelters across Asia have put a floor under prices, helping them recover from an August low of $2,283 a tonne.

CHINA GROWTH: Economic growth in China is expected to hit 6.6 percent this year and slow to 6.3 percent in 2019, economists from Beijing's Renmin University said.