Shanghai zinc rallied nearly 4 percent to a 3-1/2-month peak on Tuesday, as production cuts at Chinese smelters dragged down stockpiles to the lowest in more than a decade, while a rally in steel prices lifted nickel in both London and China. The most-traded November zinc on the Shanghai Futures Exchange rose as much as 3.8 percent to 22,800 yuan ($3,295) a tonne, its loftiest since June 19. It closed up 3 percent at 22,620 yuan.
Stocks of the metal used to galvanise steel reached 29,204 tonnes at Shanghai Futures Exchange warehouses at the end of September, the smallest since 2007. Nickel climbed 2.2 percent to settle at 105,470 yuan a tonne in Shanghai and gained 1.5 percent to $12,760 in London following a rally in Chinese steel prices.
In Shanghai, copper rose 1 percent to 50,500 yuan and aluminium closed up 1.3 percent at 14,560 yuan. Production cutbacks at China's zinc smelters due to tighter environmental checks and weaker profits had tightened supply, said Dina Yu, analyst at CRU consultancy in Beijing.
"Traders or smelters are also reluctant to deliver the metal to ShFE warehouses. They prefer to sell the metal on the physical market at higher prices," Yu said, citing premiums of around 100-500 yuan per tonne over ShFE zinc cash prices in the physical market.