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Zinc prices hit a fresh record on the London Metal Exchange (LME) on Tuesday as stocks fell once again, drawing investors to buy futures in the metal as it becomes more scarce. The contract for zinc for delivery in three months peaked at $4,290 per tonne before ending the final kerb at $4,220, up $50 from Monday's close.
"Zinc inventories are becoming critically low," UBS strategist Robin Bhar said at a seminar organised by the LME. "The legacy of underinvestment on the supply side is key, and is helping to underpin current prices." Stocks in LME-registered warehouses fell 1,325 tonnes to 107,625, a fall of more than 80 percent since mid-2005.
The zinc market would get even tighter moving into the first half of 2007, and stocks might fall to 50,000 tonnes, but a widespread response from miners would then push the market back into surplus, said economist Stephen Briggs at SGCIB.
"There is so much metal coming that the market will move into surplus from late 2007, but before then ...it is not inconceivable that (zinc) could target $5,000," he said. Zinc was pegged at the start of 2006 as the star performer on the LME and prices have doubled since then.
ALUMINIUM SLIPS: Aluminium slipped to $2,790, down $18, after some last-minute selling in the final kerb session. "It only went in the last five minutes when there was some general selling across the board, but there's no real resistance," a trader said.
Dealers may have been squaring books at the end of the month, he said. In the longer term, China's announcement last week that it would raise export taxes on copper, nickel and aluminium to 15 percent to ease investment in the energy-intensive sectors would have little impact on the market, said Dresdner Kleinwort's FX strategy team in a note.
"China is trying to limit the growth of energy intensive sectors such as for example aluminium smelters in order to conserve energy. Secondly, it is attempting to reduce its extremely high trade surplus by lowering exports. As a result, a decline in Chinese aluminium exports might be possible.
"However, the increased export tariff might also impact the profit margin of Chinese exporters only. Therefore, we regard the effect on the global market to be rather low," it said.
Beijing has been trying to curb over-investment in the copper, aluminium and steel sectors, where record global prices have led to a massive expansion in capacity.
Copper traded $10 higher, with three-month metal closing at $7,380. Lead made a new contract high of $1,630 before closing at $1,610, up $23. Nickel was up $850 at $31,350 and tin up $200 at $10,250.

Copyright Reuters, 2006

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