London Metal Exchange (LME) zinc rose 2.65 percent to close at its highest since October 1997 on Wednesday, rising after China's Zhuzhou smelter temporarily cut production by a third because of power shortages, analysts said. Zinc closed at $1,238 a tonne, up $38 from Tuesday's kerb close. "If the cutback lasts just a month it won't make much of difference to supplies," Barclays Capital analyst Ingrid Sternby told Reuters.
"However, it sends a signal to the market that the industry is very sensitive to ongoing power shortages in China, coupled with general raw material shortages," she said.
Analysts and traders were looking at a near term price target around $1,300 and above.
"In the short term we are targeting $1,300/20 and further out $1,400 is the goal," an LME trader said.
"$1,400 is our target and in this fundamental environment it's looking very achievable," Sternby said.
Zhuzhou is China's second largest zinc plant in capacity terms and produces almost 300,000 tonnes annually - about three percent of total world production.
Despite the slowdown, the firm said it remained on course to lift output by five percent.
Zinc option volatilities were firm on the LME, but drifted back for most other metals.
Open interest for February $1,250 calls stood at 1,350 lots, while there were nearly 7,000 lots open for the equivalent March strike. Nearby zinc vols were straddling 30 percent.
Most other metals were also higher against a background of gains in leading mining companies shares, led by Rio Tinto.
Copper was at $3,033, up $23.
"Spreads are tightening up as people start trying to source scarce physical material," a second LME trader said.
LME stocks were 43,525 tonnes on Wednesday, versus 430,000 tonnes at the start of last year.
The cash to three months spread widened to $140/145 backwardation from $120 backwardation at the start of the week.
Aluminium was at $1,840, up $6, while lead was $13 higher at $908.
Nickel fell $250 to $14,400. Tin saw no business, but at 1721 GMT was indicated $125 or 1.7 percent higher at $7,625/850.