Zinc surged nearly 6 percent on Friday after top Chinese smelters agreed to cut output next year by 500,000 tonnes, but gave up the bulk of gains on scepticism over whether shortages would kick in. Zinc, mainly used in galvanising steel, rebounded a day after sinking to its weakest point in six years, jumping on the back of the joint announcement by Chinese zinc producers to slash production.
"The scale of those cuts is quite significant. A surge of refined output from China has been weighing on the whole zinc market all year," said Caroline Bain, senior commodities economist at Capital Economics in London. Three-month zinc on the London Metal Exchange shot up 5.8 percent to an intraday peak of $1,620.50 a tonne, the biggest one-day gain in over a month.
Zinc prices, down by a quarter this year, pared gains to close 1.8 percent firmer at $1,560 as investors questioned whether the Chinese cuts would be enough to balance the oversupplied market. "It's hard to say this is the bottom... We had the announcement of zinc mine closures by Glencore a month or so ago and we had a pick up in the zinc price but then it fell back again."
Zinc's rally initially spilled over into other metals, but many retreated by the close, including nickel. Nickel had slumped on concern about China's slowing growth, which has weighed on the entire metals complex this year, as well as a poor outlook for its struggling steel sector. Many industrial metals have slid to their lowest since the financial crisis on waning demand growth as top consumer China transitions away from manufacturing-led growth towards a more service-driven economy.
Metals used by China's steel industry, such as nickel and zinc, have been hammered in a downturn that has also sent copper, lead and aluminium to six-year lows. "The main story is the steel outlook in China. Clearly the demand side remains extremely weak," said Dominic Schnider, analyst at UBS Wealth Management in Hong Kong. LME nickel tumbled to close at $8,735 a tonne, down 2.4 percent and its weakest since July 2003. The metal is the biggest loser on the LME this year, notching up a loss of 42 percent since January.
Commerzbank said that even though many nickel producers are losing money, it may take time to see cutbacks in the sector as cost-cutting has helped many others to survive. "It is likely to take some time before supply is reduced," a note said. Copper slipped 0.7 percent to end at $4,580 a tonne, after hitting a fresh 6-1/2 year low of $4,561. Aluminium closed 1.2 percent weaker at $1,450 a tonne after touching $1,435, the lowest since May 2009. Lead rose 0.5 percent to finish at $1,594 a tonne while tin was barely changed, edging down 0.03 percent to $14,645.