Zinc prices hit a one-week low on Tuesday on news that supply from earthquake-hit China would soon return to the market, but oil's surge to record highs helped trim its losses. Zinc futures on the London Metal Exchange, which rose almost 7 percent in the immediate aftermath of the quake last week, fell to $2,235 per tonne, its lowest since May 13.
The metal closed at $2,275 per tonne in the official open outcry trade, down $13 from Monday."Crude oil's making new highs and there's some bullishness sweeping into the commodities complex," said economist John Kemp at RBS Sempra Metals. "That's helping metals steady."
Bullish price forecasts from investment banks and tight supplies of refined products pushed oil to a new record high near $130 a barrel. But, in the longer-run, supply-demand fundamentals matter.
Zinc, for example, has lost 8 percent since the start of the year as investors factor in higher production. Sichuan-based Nanfang Nonferrous Metals expects to restart zinc production at its 10,000 tonne-a-year smelter in Deyang city within a week and Hanzhong Bayi Zinc Industry has restarted more than 80 percent at its 120,000 tonnes-a-year smelter in southern Shaanxi, company officials said. "This year generally, people have been expecting a lot better supply, so maybe we are starting to see that coming through," BNP Paribas analyst David Thurtell said.
Sichuan Hongda Co, the top zinc producer in the quake-hit province, said 74 workers had died in the tremors and damage to its zinc and chemical operations would cost 387.7 million yuan of which 286.6 million yuan were fixed assets.
Macquarie estimated zinc production losses across Sichuan and neighbouring areas, would total 20,000-30,000 tonnes, but traders in China think the damage may have been more severe, suggesting total losses from the quake at around 50,000-60,000 tonnes.
Most lead and zinc mines in quake-affected areas, including Baiyin Nonferrous Metals' 70,000 tonne-per-year lead and zinc operation, remain shut on government orders. Copper for delivery in three months on the London Metal Exchange rose $5 to $8,320 per tonne after shedding 1.5 percent in the previous session following a rise in stocks on Monday.
LME copper stocks fell 75 tonnes, following a 1,500-tonne rise, to stand at 122,650 tonnes. "We remain uninspired by the pricey base metals complex at the moment although low stocks in copper prevent us being short this metal," UBS analyst John Reade said in a report.
Aluminium inventories jumped 22,175 tonnes to 1.07 million tonnes, the highest since mid-2004. Aluminium futures were up $2 at $2,997 per tonne. Daily average primary aluminium output in April rose to 70,400 tonnes compared with a revised 70,100 tonnes in March and 67,200 tonnes in April 2007, provisional figures from statisticians the International Aluminium Institute (IAI) showed on Tuesday.
Tin, which hit a contract high of $25,500 per tonne on May 15, was down $345 from Monday's close at a quoted $23,655/23,700. "Tin remained under pressure and profit-taking continued as the market expects that the recent rally would lead to higher supply and lower demand," Dresdner Kleinwort said in a note. Nickel was down $75 at $26,000, and lead was down $60 at $2,170/2,175 per tonne.
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