Zinc prices slipped on Wednesday as investors locked in profits after a sharp rally in recent weeks that was based more on speculative buying than on underlying physical demand. Losses were pared, however, and other metals moved into positive territory late in the session, supported by a weaker dollar after the vice chair of the US Federal Reserve announced his resignation.
Commodities priced in dollars get a boost when the exchange rate weakens, making them cheaper for buyers using other currencies. The London Metal Exchange index of six industrial metals had surged 21 percent from early June until Monday, but many analysts had warned that prices were moving above levels justified by supply/demand fundamentals. The expiry of LME options on Wednesday was also influencing the market, traders said.
"We're probably seeing some profit-taking today. Given all these analysts, including myself, saying they've gone too far, some investors may be getting a bit nervous," Caroline Bain, chief commodities economist at Capital Economics, said in the morning when most metals prices were in the red.
It was surprising that there was not more risk-off sentiment in markets due to tensions over North Korea, Bain said, but she added that there also may be some underlying support for metals from the aftermath of Hurricane Harvey. LME benchmark zinc closed down 1.4 percent at $3,095 a tonne after giving up 2 percent on Tuesday. Zinc hit the highest level in a decade of $3,231.75 on Aug. 23.
Also pressuring zinc and nickel, mostly used in the steel sector, was a fall in Chinese rebar steel futures as physical trading cooled. Nickel finished 0.7 percent firmer at $12,165 a tonne, rebounding after touching an intraday low of $11,910. Protesters stormed a mining event in the Philippines, demanding that mineral extraction be halted in the world's top supplier of nickel ore.
Three-month copper closed unchanged at $6,901 a tonne after climbing to a three-year peak of $6,970 on Tuesday. "Copper is holding up remarkably well - ironic given we see LME longs at levels not seen since 2004," Alastair Munro at broker Marex Spectron said in a note.
LME lead added 0.5 percent to end at $2,341 a tonne. The Chinese mainland market for lead is tightening, which can be seen in a rising front-month Shanghai lead contract against the three-month contract. China has been shutting lead smelters as part of environmental inspections. On-warrant LME inventories of lead, those not earmarked for delivery, rose by 16 percent on Wednesday to 103,175 tonnes. Aluminium closed up 0.4 percent at $2,104.50 a tonne while tin rose 0.3 percent to $20,790 a tonne.
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