Zinc hits one-year low on higher supply expectations

Zinc prices hit their lowest point in more than a year on Thursday as the market looked ahead to rising supplies, a narrowing deficit and global trade tensions that are expected to weigh on industrial metals overall.
Benchmark zinc on the London Metal Exchange ended unchanged at $2,700 a tonne. Earlier, the metal used to galvanise steel hit $2,667, its lowest since June 23, 2017. "Investors view zinc as the base metal with the clearest bearish transition in mine supply dynamics from 2018 into 2019/20 and as such have looked to short," said Deutsche Bank analysts Nicholas Snowdon.
"Trade war concerns are dominating market sentiment. In the absence of any major policy stimuli announcement in China or signs of moderation in US-China tensions, the base metals complex will remain pressured." Position data from Marex Spectron shows zinc shorts at 11.7 percent of open interest at about 20,000 lots or 500,000 tonnes at the close of business on Monday. That, Marex said, is the highest since January 2016, when short positions were 20 percent of open interest.
Worries about nearby supplies due to large holdings of zinc warrant and cash contracts - between 50 and 59 percent - have seen the premium for the cash contract over the three-month contract rise above $51 a tonne. That compares with a discount nearly two months ago.
Markets are on edge ahead of Friday, when US tariffs on $34 billion worth of Chinese products - and retaliatory Chinese tariffs on US goods of the same value - are expected to kick in. ING analyst Oliver Nugent expects a deficit of 200,000 tonnes this year. That is about 1.5 percent of global consumption estimated by analysts at around 14 million tonnes.
A tightening LME market can also be seen in cancelled zinc warrants - metal earmarked for delivery and so no longer available to the market - now above 13 percent from near three percent. A sell-off after the New York open saw copper hit $6,312.5, the lowest since Aug. 3. It ended down 0.6 percent at $6,345 a tonne. Aluminium ended down 0.5 percent at $2,079 a tonne, lead gained 1.4 percent to $2,355, tin fell one percent to $19,400 and nickel added 0.3 percent to $14,195.