Zinc prices slipped to their lowest level in over three weeks on Tuesday as the dollar strengthened and inventories rose, highlighting concern that increasing supply would ease shortages. On-warrant zinc inventories on the London Metal Exchange - metal not earmarked for delivery from warehouses and available for investors - jumped by 17,850 tonnes, bringing the rise this month to 27 percent.
Zinc has gained 21 percent this year, touching its highest price in a decade at $3,308.75 a tonne this month on concern about shortages, though these might soon be eased, analysts said. "I think higher production should be on the cards in the short term because quite a few mining producers have flagged that they are going to increase output," said Commerzbank analyst Daniel Briesemann.
"I see the zinc price falling back below $3,000 within the next month, maybe in the next few weeks." LME benchmark zinc closed down 3.4 percent at $3,085 a tonne, the biggest one-day fall in six months. It touched a low of $3,054, the weakest level since September 22. The premium of cash LME zinc over the three-month contract fell to $27.50 a tonne from $59 on Friday and a peak of $91 on October 12.
This suggested that metal may be delivered against short positions as the main October contract expires this week. A high premium also indicates that people are prepared to pay more to secure near-term scarce supplies. Also pressuring zinc were moves by the Shanghai Futures Exchange to limit the size of December future positions and adjusting fees.
The dollar strengthened to a one-week high against a basket of major currencies, weighing on the entire base metals complex. A stronger dollar makes metals more expensive for investors using other currencies. LME three-month copper shed 1.5 percent to finish at $7,027 a tonne, hit by profit-taking after its biggest daily jump in eight months on Monday. Prices struck $7,177 in the previous session, the highest since July 2014.
The shortest time spread on copper, tom/next, which represents the premium to roll over a position for a day, soared to a high of $33 a tonne from a discount of $1.25 the day earlier. Traders said some short position holders had to pay to roll forward after they were unable to close out their positions ahead of the expiry of the October contract on Wednesday.
LME aluminium bucked the weaker trend, rising 0.2 percent to end at $2,140 a tonne, supported by China's campaign to reduce smog pollution and whittle down excess production. Nickel shed 0.8 percent to close at $11,765 a tonne, lead fell 1.9 percent to $2,492 a tonne and tin gave up 1.2 percent to $20,350 a tonne after touching a two-month low of $19,885.