Zinc up but gains seen limited as supplies still ample, copper rises

Zinc prices rose on Monday, boosted by expectations of shortages because of mine closures, though analysts say the metal is still readily available and further gains could be limited. Benchmark zinc on the London Metal Exchange finished with a 0.1 percent gain at $2,328 a tonne. Last week the metal used to galvanise steel hit a five-year high at $2,418, up nearly 70 percent since the January lows.
Many zinc mines have been shut or mothballed over the past couple of years, but prices did not really take off until deficit expectations intensified this year with the closure of the Century mine in Australia and Lisheen in Ireland. "There has been a change in mine supply, but the metal market hasn't really tightened yet," Citi analyst David Wilson said. "There is a lot of scepticism about zinc, whether prices can go much higher." Traders say funds are looking at $2,400 as a point to take profits on long positions and producers, too, are hedging output at that level.
Also holding back prices is the idea that current levels could tempt some producers to restart mothballed capacity. "Some of this restart speculation will undoubtedly centre on Glencore, which single-handedly took 500,000 tonnes out of the market last year. But we think the company will keep the lid on output for now," said Edward Meir, Independent Commodity Consultant at INTL FCStone. "Harder to figure out is what the Chinese mines will do, collectively accounting for 30 percent of global supply."
Global supplies are estimated at about 13.5 million tonnes this year, with analysts expecting a market deficit of 221,000 tonnes. Further price gains could be held back by global inventories of 1.475 million tonnes, according to the latest data from the International Lead and Zinc Study Group. Traders said that buying by Chinese traders after a week-long holiday and oil prices at one-year highs had boosted industrial metals traded on the LME. Copper closed 1.5 percent higher at $4,848 a tonne, aluminium rose 0.9 percent to $1,690 and lead added 1.1 percent to $2,100. Tin climbed 0.5 percent to $20,095 and nickel was up 2.9 percent at $10,530 a tonne.