Zinc climbed to its highest in more than three months on Thursday on concerns about potential shortages, while a slide in the dollar on worries about the US economy boosted copper and the wider industrial metals market. Metals were buoyant as investors scrambled to close out bearish positions before the Lunar New Year holiday in China.
The closure of major zinc mines late last year and the filing for Chapter 11 bankruptcy by US producer Horsehead this week highlighted concern over tightening supply. Three-month benchmark zinc on the London Metal Exchange surged to a peak of $1,728 a tonne, the highest since October 29, before paring gains to close at $1,715, a rise of 1.1 percent.
Zinc, mainly used for galvanising steel, is the best-performing metal on the LME this year with a gain of nearly 7 percent. One trader, however, said the market was getting ahead of itself because shortages would not affect the market until later in the year. "It's a good bounce but fundamentally unwarranted at this stage."
LME sister metal lead gained 0.5 percent to finish at $1,803 a tonne after touching a peak of $1,829, the strongest since October 15. Other metals also rallied as the dollar index slumped to a three-month low, making commodities priced in the US currency more competitive to buyers outside the United States. The dollar, which suffered its biggest daily fall in more than two months on Wednesday, piled up more losses after US jobless claims rose more than expected last week and a report showed a 218 percent jump in announced job cuts.
The dollar drop also eased concerns over yuan depreciation, at least temporarily, soothing sentiment in Asia and helping Chinese stocks to rebound more than 1 percent. Rallies in base metals could peter out, said Caroline Bain, senior commodities economist at Capital Economics.
"Even though we're positive on the outlook for the second half, this could turn out to be a false dawn. The fundamentals aren't really in place yet, it's quite sentiment-driven and there's uncertainty about US rates." LME copper ended 1.1 percent firmer at $4,687 a tonne, building on the previous session's 1.9 percent gain. The contract touched an intra-day high of $4,720, its highest since January 4.
Chinese metal traders and merchants are likely to take a longer than usual Lunar New Year holidays this year, betting that spot demand for metals such as copper will stay weak at least in coming few weeks, industry sources said. LME aluminium rose 0.6 percent to close at $1,534.50 a tonne, having touched its highest since December 29 at $1,545. Tin climbed 0.8 percent to end at $15,000 while nickel added 0.2 percent to $8,535.