LONDON: Zinc prices in London hit their highest in more than 20 months on Thursday as the key spread on the London Metal Exchange (LME) jumped to a massive premium, though rising LME stocks and flat demand in top metals consumer China helped to cap gains.

Three-month zinc on the LME rose 1.5% to $3,191.50 a metric ton by 1114 GMT after hitting $3,284 for its highest since early February last year.

“Fundamentals are fairly soft or not so tight at the moment, with zinc demand in China being flat, so a lot of this action is driven by other factors,” said Dan Smith, head of research at Amalgamated Metal Trading.

The premium on cash LME zinc over the benchmark three-month contract jumped to $58 a ton on Wednesday, its highest since September 2022. It was last at $37 on Thursday.

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The growth in the premium, known as backwardation, is related to tightness in near-term supply with one party holding between 50% and 79% of available stocks in the LME-registered warehouses.

There is also a long position holder with more than 40% of LME November futures’ open interest.

“There are moments when someone would get caught short,” said Smith. “As to those who have a long position, nobody knows when they are going to give it up. It is a bit of a poker game, really.”

Meanwhile, zinc stocks in the LME-registered warehouses registered a net inflow of 7,000 tons on Wednesday, raising the total to 239,150 tons, LME daily data showed.

LME aluminium was up 0.6% at $2,685.50 a ton after hitting its highest since May 31 at $2,715, supported by a tightening alumina market.

Exports of alumina raw material bauxite from Guinea Alumina Corporation (GAC) were suspended by Guinea, a major exporter, about two weeks ago.

LME copper rose 0.6% to $9,575 a ton, lead was up 0.1% at $2,064, tin jumped 1.3% to $31,290 and nickel firmed by 0.1% to $16,310.