Falling stockpiles and pollution alerts in top metals producer China fuelled supply concerns and helped to drive zinc and lead prices to multi-year highs and aluminium to a two-week peak on Friday. Demand for metals looked strong after data showed economic growth in China, the world's biggest consumer, accelerated for the first time in seven years.
"Based on the fundamentals and the technicals, prices are going to hit some new highs again," said Robin Bhar, head of metals research at Societe Generale. Zhengzhou, capital of key aluminium-smelting province Henan, raised its air pollution alert to red, the highest level, from Friday, bringing tighter curbs on output of industrial products including metals.
A similar alert in the lead production hub of Jiyuan, also in Henan, was downgraded to orange on Friday but strict curbs on production will remain until January 21. Benchmark lead on the London Metal Exchange touched $2,630.50 a tonne, its highest since August 2011, in early deals before closing down 1.1 percent at $2,581.
Prices of the metal used in batteries were supported this week by a 12,225-tonne fall in on-warrant stocks available to the market in LME-registered warehouses to 85,000 tonnes. Poor weather in China and the United States is tightening the physical market, said analysts at brokers Marex Spectron. Low temperatures cause car battery failures, leading to higher demand for replacement batteries.
Over 2014-2016 global mined lead supply shrank by roughly 500,000 tonnes, or 10 percent. Consultancy Wood Mackenzie sees a market deficit of 115,000 tonnes this year and 56,000 tonnes in 2019 after a 119,000 shortfall last year. LME zinc did not trade at the close but was bid 1.2 percent higher at $3,416 a tonne after touching $3,444, the highest since 2007. The metal used to galvanise steel was on track for a sixth week of gains.
On-warrant LME stocks fell by 24,175 tonnes to 98,400 tonnes. Total stocks at the LME and Shanghai Futures Exchange are about 260,000 tonnes, down from 580,000 at the start of 2017. One entity was holding between 50 and 79 percent of LME zinc warrants, fanning concerns over availability of supply.
Rising production of zinc over the next couple of years is unlikely to replenish dwindling inventories enough to halt rising prices in the near term. LME aluminium finished 1 percent down at $2,219 a tonne after earlier hitting $2,270.50, the highest since January 2. Copper ended 0.5 percent lower at $7,041 a tonne, nickel closed up 2 percent to $12,720 and tin finished 0.9 percent higher at $20,600.
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