Zinc prices jumped to their highest in more than eight years on Thursday and copper headed towards its 2016 peak as funds piled in on expectations of stronger demand and tighter supplies. Benchmark zinc on the London Metal Exchange ended up 2.1 percent at $2,725 a tonne, off an earlier $2,760, its highest since March 2008.
The metal used to galvanise steel has gained nearly 90 percent since a 6-1/2 year low of $1,444.50 in January on worries about shortages due to mine closures. "There is a lot of Chinese money coming in and zinc has very strong fundamentals," said Citi analyst David Wilson. "We thought the zinc market would tighten through next year, the surge in speculative flows shows funds have jumped the gun on that idea."
According to a Reuters survey, the zinc market is expected to see a 400,000 tonne deficit this year, but this could easily be offset by inventories, which in LME approved warehouses stand at above 440,000 tonnes. Hidden inventories, estimated at 1.4 million tonnes by Macquarie or about 10 percent of global demand, trickling into the market may also surprise zinc bulls.
Traders and analysts say Donald Trump's plans to spend $1 trillion over 10 years on infrastructure is not a big deal for industrial metals. Overall, however, sentiment has improved to the extent that copper, up 20 percent so far in November, is on course for its biggest monthly gains since April 2006. "Chinese demand has been good this year and it will be ok next year, though not as strong," Wilson said. "People are expecting mine supply to slow sharply next year ... the market is not oversupplied, we expect a small deficit next year."
Copper closed up 2.2 percent at $5,868 a tonne, its highest since November 11 when the metal used widely in power and construction climbed above $6,000 for the first time since June last year. "There is evidence of producer hedging dribbling into the market across copper, zinc and aluminium in particular," Marex Spectron analysts said in a note "But this is nowhere near enough to stem the tide of buying from the Western (funds) and fresh inflows both from Asia and the West." Aluminium fell 0.4 percent to $1,771, lead rose 0.8 percent to $2,242, tin gained 0.5 percent to $21,350 and nickel slid 0.2 percent to $11,580.