Zinc Has Been the Best-Performing LME Metal of Late — Can it Go Up Further?

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Björn Wylezich/Adobe Stock/

Three-month zinc on the London Metal Exchange was up 1.3% at $3,426 a metric ton in official midday trading on Monday, having earlier touched a peak of $3,440 a ton — its highest since August 2007, Reuters reports.

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Like all base metals, zinc was been driven higher by a weak dollar — but that is far from the only driver pushing it to outperform all other base metals so far this year.

Inventories Continue to Fall

LME zinc inventories have fallen for 13 consecutive weeks to their lowest since October 2008. There was a further drop of 10,000 tons to 116,675 tons just late last week.

Meanwhile, Shanghai stocks have declined more than half over the past year, Reuters says, as supply constraints persist. As a result, Treatment and Refining (TC/RC) charges for concentrates and refined metal have fallen as refiners fight for cargoes to process.

A Market in Deficit

The reason physical metal is in short supply is no secret.

The market is in deficit, by 504,000 tons during January to October 2017, compared with a deficit of 202,000 tons recorded in the whole of the previous year, the World Bureau of Metal Statistics reports. Buyers had hoped 500,000 tons of capacity at Glencore’s Lady Loretta mine in Australia would be back onstream by now, having been closed due to low prices in 2015. Although the company promised to restart production in the first half of 2018, so far there have been no deliveries.

Higher prices have encouraged tailings at the previously closed Century mine in Australia to be opened up for processing; but again, significant deliveries are still pending.

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Zinc Could Rise Even More

Meanwhile, speculative positions have grown, betting on further price rises.

That is not without some basis, as robust demand has been constrained by tight supply and with Chinese smelters hit by Beijing’s environmental campaign to close energy-intensive manufacturing activities during the winter heating season. Reuters quotes ING analyst Warren Patterson, who said if economic and manufacturing data remain strong, there is potential for further upside.

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