LONDON: Zinc prices slumped on Wednesday to the lowest in more than two months on a sharp rise in inventories that highlighted excess supply as demand falters in China.

Benchmark three-month zinc on the London Metal Exchange was down 1.6% at $2,613.50 a tonne by 1145 GMT, its lowest since Nov. 13.

Stocks in LME-registered warehouses have soared by 57% over the past two days to the highest levels since June 2017.

The sharp rise in inventories was likely the result of existing stocks moving into LME warehouses to take advantage of financial deals, said Citi analyst Oliver Nugent.

"A lot of metal has been sitting at a combination of smelters and traders, so the stock was out there. This is pretty consistent with the view that there's going to be a decent sized surplus this year," he said.

Citi has forecast a market surplus of 70,000 tonnes this year.

"My suspicion is that we will bleed lower from here, but if we find ourselves in the $2,500s, that may look like something that is relatively cheap."

The Chinese New Year on Feb. 11-17 is also expected to curb demand in the world's top metals consumer.

"Due to the COVID-19 outbreak in Hebei province, restrictions to logistics are also expected to hurt demand, with the region accounting for roughly 10% of the total galvanising capacity in China," ING analysts said in a note,

Hebei is China's steel producing hub and one of the hardest hit provinces in the country's most recent coronavirus outbreak.

Zinc, used mostly to galvanise steel, is now the worst performer year-to-date among base metals on both the LME and Shanghai Futures Exchange.

FUNDAMENTALS

• Cash zinc on the LME has been trading at a discount to the three-month contract since June 2020, indicating abundant nearby supplies.

• LME copper fell 1.2% to $7,916 a tonne, aluminium dipped 0.4% to $2,012.50, nickel shed 0.5% to $17,960, lead dropped 1% to $2,058, while tin slipped 0.2% to $22,800.