Zinc extended gains to a five-week high as investors unwind big bearish bets, with signs of tighter supplies and buoyant commodities demand in China brightening the outlook for the metal.
“Short-covering has been the driver of recent gains,” Marex Group analyst Al Munro said by email. He added that the rally could run into resistance above $2,600, a level “above which exchange stock deliveries have emerged over the past year.”
Zinc smelters have faced a sharp reduction in the processing fees they charge to turn mined ore into finished metal, and analysts say there could be more cuts to come as miners struggle to boost output.
“Metal market participants have held perennially bearish views on zinc on expectations that mine supply increases would push the market into surplus,” Bank of America commodity strategist Michael Widmer said in a note this week. “But the anticipated glut has so far not materialized, because mined and refined production have consistently underperformed.”
Copper smelters have also faced a rapid decline in spot processing fees. Bloomberg reported on Thursday that at least 15 smelters have been invited to meet in Beijing next week to discuss measures to counter the decline, including a potential joint production cut.
Still, the president of Tongling Nonferrous Metals Group Holdings Co., one of the top producers, said this week that his company isn’t planning output cuts, as it prepares for strong demand growth in electric vehicles and other new-energy sectors.
Zinc was up 1.6% at $2,534.50 by 4 p.m. local time on the LME. Copper gained 0.8% to $8,648 a ton. Nickel and aluminum advanced more than 1%.
