Global zinc deficit at 248 kt Jan-Jul 2014

The International Lead and Zinc Study Group (ILZSG) has released the preliminary data for world Zinc supply and demand during the initial seven-month period of the current year. The provisional data indicates that the global zinc production has grown by almost 2% year-on-year during January to July this year.

According to ILZSG, the world market for refined zinc was in deficit by 248 kt during the first seven months of the year. The total reported stock levels declined by 291 kt during the same period.

The higher mine output from China, Mexico and the US contributed to the 3% year-on-year growth in global Zinc mine supply. On the other hand, the mine supply from Canada, Ireland and Peru declined during the quarter.

The global refined zinc metal production has increased by 4.1% during the period. This was primarily on account of increased production in China, Italy, the Republic of Korea, Norway and Poland.

The global demand for refined zinc metal rose 7.7% during the seven-month period. The apparent usage of refined metal by China and the US increased 13.8% and 8.7% respectively. The refined zinc metal usage remained flat in the Europe.

ILZSG statistics indicate that the zinc mine production during January to July this year totaled 7,713,000 tonnes as against 7,538,000 tonnes during the same period in 2013. The global refined zinc metal production during the period totaled 7,684,000 tonnes during Jan-Jul ’14 as against 7,383,000 tonnes in 2013. The apparent zinc usage totaled 7,932,000 tonnes during the initial seven-month period in 2014, higher from 7,368,000 tonnes during corresponding period in 2013.

Weak Chinese demand may push zinc stocks to LME warehouses

 

More refined zinc is likely to be shipped from bonded warehouses in China to warehouses approved by the London Metal Exchange in Asia in the fourth quarter as tight credit crimps domestic demand at a time of increased imports, traders said.

 

Higher shipments from China, the world's top consumer and producer of refined zinc, to LME warehouses in Asia could cap LME zinc prices , which have risen more than 10 percent this year.

 

Chinese importers had contracted more refined zinc for term shipments for delivery in 2014 and the bulk was set to be used as collateral for loans, traders said.

 

But tight credit in China has slowed domestic demand this year, weighing on Chinese prices, and traders said that had forced importers to store the metal in bonded warehouses, mostly in Shanghai and the southern province of Guangdong.

 

"If importers are not able to sell the stocks into the domestic market by October ... they may ship to the LME warehouses (in Asia)," said a manager at Shanghai-based firm, which imported zinc for its own consumption and trading.

 

The firm estimated there was more than 100,000 tonnes of refined zinc in bonded warehouses in Shanghai currently, said the manager, who declined to be named because he was not authorised to talk to the media.

 

China's refined zinc imports surged 39 percent to 421,130 tonnes in the first seven months of the year. 

 

Some bonded zinc stocks in Guangdong that have been used in financing deals with foreign banks have already been moved to LME warehouses in Asia after an alleged metals financing scam came to light in early June, traders said.

 

The relocation was requested by foreign banks to secure the metal, even though it was alumina, aluminium and copper stocks in Qingdao port that were involved in the financing scam, they said.

 

A trader who works for an international trading firm said the company would move 1,000 tonnes of bonded zinc stocks from Guangdong to LME warehouses in Malaysia and Singapore in coming weeks.

 

Traders said Chinese banks had been willing to give letters of credit for zinc imports even after the scandal at Qingdao port, although they had tightened checks on the stocks.

China's Lead and Zinc Mines close after heavy rains

Heavy rains in Shaanxi Province, China, have negatively affected production in local lead & zinc mines, Shanghai Metals Market learns.

The impact in Hanzhong is in particularly big, according to SMM sources. There are four lead & zinc mines in Hanzhong, and it is heard that some mines have closed for a week following heavy rains. It remains unknown when production will be resumed.

Lead and Zinc mines in Shaanxi province are mainly distributed in Baoji, Hanzhong and Shangluo. The impact on mines in other two regions is small so far, SMM learns.

Zinc prices to rise further on falling supply, growing demand

The zinc price in the market is shooting up. According to the investors the price of zinc will continue to run high as some of the giants in the zinc mining industry is running low on supply as the demand increases.

 

Zinc is a vital base metal being used in many industrial activities starting from sunscreens to steel coatings in the car tires.  The problem further increases as this particular base metal has very few substitutes. U.S Mint has initiated to reduce the company’s manufacturing cost, so as to increase the price for their zinc. As for the steel industry, zinc is a vital part of the industry as, the most vital metal used in the rust resistant process of steel making, in that case the steel makers  are the worst affected by this phenomena as they buy about half of the zinc produced in the world.

 

The records show that, since 2007 this is the first time zinc steep this lower than the demand. An American multinational investment banking firm, Goldman Sachs, stated that, many miners would have to face closure as they would find it difficult to locate a new source of the metal with the current pricing. Until 2018 it will be difficult for the miners to cease the demand from industries and coin maker for zinc.

 

A metal strategist of the bank, Stephen Briggs stated that, the large mines all around the would rather soon close down, leaving a very few to replace them, which will be not even that big.

 

Mann Rasmussen, an analyst stated that, there are loads and loads of unrefined zinc available in China, which could be further refined and taken into the market. But at the same time Mr. Chevely of the Investec stated that, the dependence over Chinese zinc supply is unhealthy as the supply wouldn’t even diminish the need in the country alone. 

Zinc hits 4-week peak, aluminium up as funds buy

 Zinc climbed to a four-week high and aluminium neared an 18-month peak on Tuesday in markets driven by momentum-based speculators and computer-driven funds.

But analysts cautioned that both zinc and aluminium prices were moving ahead of supply/demand fundamentals as inventory levels remain high.

Aluminium prices, which have gained 13 percent over the past two months, have also been supported recently by one investor holding a large position of inventories and short-dated futures.

Three-month zinc on the London Metal Exchange closed at $2,378, up 0.9 percent, after touching a session high of $2,391.25, the strongest since Aug. 5.

"The big issue for me is that you've been seeing Chinese refined zinc production surging quite sharply since June, yet you have a relatively weak end-user sector in terms of construction activity," David Wilson, an analyst at Citi in London, said.

"Zinc has probably one of the biggest exposures to residential construction activity of any of the metals."

While investors are betting on shortages developing due to mine closures, inventories of zinc in LME-approved warehouses are giving the opposite signal, having surged by 13 percent over the last month to 739,400 tonnes.

Spot prices trading at a premium to the benchmark suggests more zinc could be delivered into LME inventories in coming weeks, broker Triland said. LME zinc cash traded at a $1.75 premium to benchmark prices, the highest in a month.

ALUMINIUM

LME benchmark aluminium closed 0.6 percent higher at $2,107 a tonne, trimming gains after touching a session high of $2,116, within shouting distance of last week's peak of $2,119.50 which was its most expensive since February 2013.

"We're surprised how far prices have risen," said analyst Ivan Szpakowski of Citi in Shanghai.

"A lot of it has been driven, we think, by CTAs (commodity trade advisers), momentum traders, and also macro trading on the more positive views of global economic growth. So, we don't think it's been as driven by fundamental factors. Our expectation is that prices bounce back lower."

Consumers have been restricted from accessing global stockpiles partly due to logjams at exchange warehouses.

Wilson said aluminium prices have been supported by one party holding up to 80 percent of LME stock warrants

"That's clearly supportive of the front end of the market, but whether it's a reflection of the real physical market, I'm not so sure," he said.

Also fuelling interest in aluminium and zinc were expectations that central banks in Europe may be forced to act to shore up their economies after weak economic data.

On Tuesday, euro zone producer prices fell the most since April, underlining dis-inflationary pressures in the single currency area ahead of the European Central Bank's monetary policy meeting on Thursday. 

"If we see more stimulus from the ECB, which is looking more and more likely, that's going to be a boost to commodity markets ... and it's helping to offset some of the more negative economic signals at the minute," said analyst James Glenn of National Australia Bank in Melbourne.

LME copper closed 0.5 percent higher at $6,973 a tonne, after losses of 0.6 percent in the previous session when it fell near support at $6,913.25 a tonne, the trough from Aug. 28, which was its weakest since Aug. 20.

Nickel ended 1 percent lower at $18,550 a tonne. brushing off threats of greater sanctions on Russia, one of the world's top producers of the metal, even though sister metal palladium has soared to a 13-1/2 year top.

Worries that sanctions could restrict supply of nickel , used in stainless steel, helped boost prices earlier this year.

Lead ended at $2,239 a tonne, up 0.3 percent and tin closed 0.5 percent lower at $21,515.

MCX-zinc (₹144): BUY

The zinc futures contract traded on the Multi Commodity Exchange (MCX) has rallied strongly over the last three months.

The contract has risen over 17 per cent from ₹122.4 a kg in May to ₹144. Increase in demand coupled with a sharp fall in inventories is supporting the price rise.

According to the data from the International Lead and Zinc Study Group, , the market for zinc ran into a deficit for the first time in 2013 after many years.

Also, the deficit has widened to 2,34,000 tonnes in the first half of this year, which is much higher than the 94,000 tonnes deficit recorded for the entire 2013. Widening deficit is expected to limit the downside and could push the price further higher in the coming weeks.

Moving in tandem with the global zinc price, the MCX-zinc futures contract witnessed a sharp rally in the months of June and July. Subsequently, this rally took a pause and the contract has been on corrective consolidation since August.

The price action in the last two weeks of August suggests that the consolidation could be nearing its end. The contract appears to be gearing up for a fresh leg of up move.

This offers traders with a short-term perspective a good opportunity to initiate fresh long position in the contract.

Short-term view: The short-term outlook for the MCX-zinc futures contract is bullish.

The contract’s corrective fall from the August high of ₹146.95 found support at ₹137.6 – the 38.2 per cent Fibonacci retracement level.

An upward reversal from this support level has thereby kept the uptrend intact. The 21-day moving average level at ₹142 is the immediate support for the contract. Key short-term support is at ₹137.6. There is no danger for the short-term bullish outlook as long as the contract trades above this level. Resistance is at ₹147. A strong break above this level can take the contract higher to ₹155. Traders with a short-term horizon can initiate fresh long position at current levels. Stop-loss can be kept at ₹136 for the target of ₹154.

The short-term outlook will turn negative if the contract falls below ₹137.6 decisively. The ensuing target on such a fall will be ₹130.

Medium-term view: The medium-term outlook is also bullish for the contract. It has been trading in a bull channel for more than a year. Key medium-term support is at ₹130 which is also the channel support level.

While the contract trades above this level, a rally to ₹163 is possible over the medium-term. Traders with a medium-term perspective can consider holding their long positions with a wide stop-loss at ₹129 for the target of ₹162.

Intermediate declines to ₹130, if happens can be considered for accumulating long positions.

The medium-term outlook will be mitigated if the contract records a strong close below ₹130. The next target will be ₹121.

Scotiabank foresees dramatic rise in Zinc and Nickel prices

As per the latest analyst report from Scotiabank, the cyclical recovery in base metal sector is likely to result in dramatic rise in zinc and nickel prices over the next two years.

The prices of both these metals has witnessed steady rise during this year, the report noted. The zinc prices have already appreciated by nearly 17% YTD. During past month alone, the prices rose by nearly 11%. Meantime, nickel prices have rallied nearly 37% so far this year. The prices have moved to $8.64 per pound from $6.31 per pound at the start of the year.

The Scotiabank report states that both zinc and nickel are positioned well for a drastic rise, as they are already in or near to supply deficit situation. The world demand and supply balance for refined zinc will turn into deficit in 2014. World Nickel market is also most likely to shift into deficit in 2015.

Zinc prices need to elevate itself to at least $1.13 to trigger new mine development. But only higher prices of the metal could ensure ample supplies to meet the demand. The report states that the metal prices are likely to hit $1.60 towards the end of this decade.

For nickel, the report predicts the price at $10.75 in 2015. The prices are likely to rise further to $12 in the next year. The Indonesian ban on ore exports will keep the supplies tight. As a result, the prices are unlikely to drop in the next two years. The situation may see a change during late-2016 when new Indonesian facilities are expected to come online, Scotiabank noted.

Zinc and Aluminum Rise on Signs U.S. Demand Will Quicken

Aluminum and zinc rose in London as a jump in home building fueled speculation that demand will accelerate in the U.S., the world’s second-biggest consumer of industrial metals.

Housing starts surged in July to the highest in eight months, U.S. government data showed today. Yesterday, a private report showed confidence among home builders rose in August to the highest in seven months. Zinc goes into household products including brass plumbing fixtures, while aluminum is used in window frames and other building components.

“Two days in a row of decent housing and building numbers is pretty good, especially for a base metal like zinc, which is used in galvanized steel,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “That’s a big part of demand.”

Zinc for delivery in three months climbed 0.9 percent to $2,302 a metric ton at 5:50 p.m. on the London Metal Exchange. That’s the biggest increase since Aug. 12.

Aluminum for three-month delivery gained 1 percent to $2,039 a ton. The metal also advanced 1 percent yesterday.

The fee to borrow aluminum for a day in London reached $9 a ton, the highest since December 2012. The construction industry accounts for 20 percent of world usage, according to United Co. Rusal, the largest producer.

Aluminum for immediate delivery closed yesterday at a $1.25-a-ton discount to the three-month contract, the smallest gap since Dec. 17, 2012. Stockpiles monitored by the LME are at the lowest since September 2012.

Zinc: A Deficit or a Surplus And When ?

The long-term narrative for Zinc is closing old mine capacity, limited new mine additions and demand growth resulting in a market deficit – at some point.

The debate is when. The World Bureau of Metal Statistics puts the market narrowly still in surplus to the tune of just 38 kilotons from January to April, but that’s fairly consistent with their estimation for last year as a whole of 114 kilotons. The International Lead and Zinc Study Group (ILZSG), meanwhile, is reported by Reuters to estimate the world outside China to have a 138-kiloton surplus for the first five months of this year, down from 244 kilotons for the same period last year.

With China, alone, consuming nearly half the world’s total a surplus or deficit there is crucial to assessing the global market position. Unlike aluminum, which exists in a parallel universe separate from the rest of the world, China’s zinc market is very much a part of the global zinc market with imports and potentially exports playing a role in overall surplus or deficit. The ILZSG estimates China’s zinc market to be in a 332 kiloton deficit from January to May, but Andy Home at Reuters cautions about taking these headline figures at face value, the ILZSG assesses consumption by including imports, a significant proportion of which is almost certainly not consumed at all but flows into bonded warehouses as part of the shadow banking sector’s collateral credit financing market.

Quoting Goldman Sachs estimates, Reuters suggests China has over imported around 200 kilotons this year, all of which has gone into bonded storage where stocks have risen by that amount this year alone. Whether this will continue, given the current legal and regulatory scrutiny of this form of credit financing in China, remains to be seen. The point is, these imports should not be taken as consumption, and China’s true consumption may be somewhat less than headline figures suggest. Both Reuters and Goldman Sachs suggest the market may not go into deficit until next year at the earliest and suggest the current price strength, fueled by investor enthusiasm for the deficit story, may be overdone for now.

HSBC is taking a more bullish stance in their Quarterly Review, certainly in terms of the deficit story, saying they expect the market to be in deficit this year to the tune of 293 kilotons, but then they are taking the falls in LME and SHFE inventory as clear markers for material shortage.

Reuters, on the other hand, looks at exchange stock outflows a little differently, saying – as far as the LME is concerned – we can’t take stock flows as indicative of anything since it is such a narrow market. 84% Of LME zinc inventory is held in New Orleans and, of that, the vast majority is held by just one major position trader, Glencore’s Pacorini. In March 147 kilotons was loaded in, since then 120 kilotons has been loaded out, yet in July 62 kilotons had been loaded back in again. In reality, the chance any of this went to consumers or came from producers is slim. It’s probably been shuffled between on warrant and off warrant storage. As such, LME inventory flows should be taken with a pinch of salt when determining if they mean anything for overall supply or demand.

Zinc demand has certainly been solid if not robust. HSBC see growth from just about all geographic sectors with the exception of the CIS which has been busy committing economic suicide recently over its activities in Ukraine. But the bank is expecting economic activity there to recover from 2016 and global demand growth to be solid while supply experiences the loss of major aging mines. As a result, the bank predicts double-digit percentage price inflation through 2017. Specifically, they say the annual average price is expected to be $2,350 (USD) per ton next year, $2,665 per ton in 2016 and $3,070 per ton in 2017. Investors, on the whole, seem to share their enthusiasm, they may just have piled in a little early for the ride.

Rally in zinc set to stall

Chinese smelters increase production to take advantage of bull run

With a gain of over 20 per cent in the last 12 months, zinc is one of the top five gainers among ferrous and non-ferrous metals in the commodities market. But it is unlikely that zinc will make much headway over the next few months.

One of the reasons for the rally to stall will be rising supply especially with China increasing the output to benefit from the high prices that are prevailing now. A sign of things to come could possible be last week’s fall in zinc prices by four per cent.

Price forecast

On Monday, zinc fell below $2,300 a tonne to $2,295 for delivery in November. From the weekend closing, the drop was $34.

BNP Paribas sees zinc averaging $2,205 in the October quarter and $2,270 in the last quarter. Currently, cash zinc prices are ruling at $2,332 and they are expected to drop to levels of $2,090 this year, according to analysts. Next year, prices could rise to $2,244.

Last week, price fell mainly because London Metal Exchange inventories increased by over five per cent to 6.91 lakh tonnes. It was biggest rise in a week after April. Inventories have also increased in China.

Speculation

Ironically, zinc zoomed because stocks are down by 2.41 lakh tonnes a year. So, what has changed now that the zinc’s progress could be halted?

According to Hermes Fund Managers Ltd, stocks in Chinese warehouses are rising. Reuters quoted Joseph Murphy, analyst with Herms Fund, as saying that the metals market is seeing drawdown in LME stocks but at the same time warehouse stocks are on the rise.

Zinc smelters will get better returns for producing more, which could result in the metal prices being dented.

Hermes said refined zinc demand will exceed supply by 2.5 lakh tonnes this year and 2 lakh tonnes next year, according to BNP.

Traders on LME say that speculation in zinc is ending by shifting to other metals such as aluminium, nickel and lead.

Funds have cut their bearish bets to 39,368, according to LME commitment of traders data, down from over 40,000 in the last week on July.

Copper fallout

Murphy said that ample supplies of zinc concentrate and higher charges for treating apart from surging domestic prices should encourage smelters in China to boost zinc output.

Zinc is also gaining because a probe by Chinese officials revealed that copper is being used as a financial tool. This has moved speculators and hedge funds to zinc on the Shanghai Futures Exchange.

The increasing interest in zinc is supported by Chinese data showing rise in imports to 68,476 tonnes in June, a six-month high. In comparison, copper imports have been dropping since April.

The problem with copper and aluminium is that Chinese authorities suspect that stocks of these metals have been offered as collateral manifold by a multi-national firm owned by a Singaporean.

But now with stocks tending to rise, some traders have taken their foot off the accelerator, while others have begun to cash in their position.

Some commodity brokerages have told their clients to hold back investments of zinc since it had run up too fast.

A drop in prices of zinc, used mainly for steel galvanising, means India could tend to gain as domestic rates are based on 15-day LME average.

hindubusinessline

Zinc becoming investors new darling

Instability in precious and base metals prices during the past three months has pushed investors to find alternative objects of affection, with zinc quickly becoming a favourite and hitting near three-year highs, a report published Tuesday by the London Metal Exchange shows.

Prices for the metal, mainly used as a protective coating for iron and steel in construction, have jumped almost 17% since early May, hitting $2,410 a tonne late July amid worries over mine supply and falling warehouse stocks.

Experts remain bullish on the metal outlook despite a temporary pullback in prices in the last two days. Zinc fell Wednesday for a second day in London amid expanding stockpiles and speculation that a strengthening dollar will slow demand for the metal.

But bets on rising zinc prices, or long positions, accounted for 30% of total open interest as of Aug. 1, the most among the six metals traded by LME, according to its Commitments of Traders report. Money managers are net-long all of the metals, the data showed.

And according to analysts, such as Naveen Joshi, the level of underlying demand for zinc, coupled with the fact that new mine supply would not be added anytime soon could lead to the emergence of tightness in supply side over the next two years.

“Zinc has now become one of the hottest commodities in the world. The global imbalances with regards to higher demands and supply constraints would make the prices of the metal go higher not only in the short term but also long term,” he writes.

LME zinc stocks have increased 1.5%, the most since April 1, to 668,625 tons on a jump in New Orleans.

Zinc prices to average around $2,500 per mt over 12 months: Goldman Sachs

According to latest research note published by Goldman Sachs (GS)- the investment banking major, zinc prices are likely to average around $2,500 per mt over the next 12 months. However, in immediate near-term, the prices are likely to remain under pressure. Although it maintains overall bullish view on the metal, the prices are most likely to cool off after the recent 13% rally since late-June ’14.

According to Roger Yuan, analyst at GS, the fundamentals of the metal still look bullish as large mines-Australia’s Century and Ireland’s Lisheen are expected to be depleted by mid-2015. The closure of the mines is likely to cut supplies by 450,000 mt/year and 160,000 mt/year respectively. This will further tighten supply of zinc into global market. Over a period of 12 months, zinc prices are expected to average around $2,500 per mt. The research notes states that any short term dip in prices should be used a strong buying opportunity.

The metal prices had a stellar run since late-July. The zinc prices have soared nearly 13% since then. These points to a near-term downside pressure on prices. The recent rally was mainly on the back of better US and Chinese macro economic data. Going forward, Chinese imports are likely to reduce, which in turn may bring down the zinc prices.

The spot price of Zinc at LMEselect had quoted at $2,355 per mt as on last Friday.

Doubts creeping in over stellar zinc price run

While the aluminium price was the strongest price performer among industrial metals in July, zinc again enjoyed a stellar month, rising almost 8% over June.

The price of zinc rose to a near-three year high of $2,416 a tonne last week as the base metal continues to benefit from expected supply cuts due to the scheduled closures of Australia's Century, Namibia's Skorpion and the Lisheen mine in Ireland.

Lisheen and Black Mountain, both controlled by London-listed Vedanta, also suffered production disruptions this year, further boosting the price of the base metal.

While zinc inventories have pulled back some 30% this year warehouse stocks remain relatively high at more than 655,000 tonnes compare to the long-run average of around 500,000 tonnes since 1990.

Last week levels also ticked up for the first time in months, which saw the metal fall back below $2,400 a tonne.

Another factor clouding the supply issue is the use of commodities as collateral for trade credit in China – responsible for 40% of base metal demand. Beijing is clamping down on the practice as it tries to curb its shadow banking system and after a scandal involving such deals at a major port.

While zinc is not as widely used in financing deals as copper, some 250,000 tonnes of zinc is currently being held in Chinese bonded warehouses according to research house Capital Economics.

The latest data from the International Lead and Zinc Study Group also show that mine supply continued to increase in the first four months of this year, growing by 6.8%. Nevertheless, Australia's government commodities researcher, BREE, estimates global deficits of 190,000 tonnes in 2014 and 116,000 tonnes in 2015, as no new major mines are due to be commissioned to replace the lost output.
"People are asking questions about whether zinc has any further upside. We have been saying that the price has escaped the fundamentals. It's overextended and it's got a correction due," analyst Vivienne Lloyd at Macquarie in London told Reuters on Thursday.

On the demand side the forecast also remains positive.

China has been able to lift manufacturing activity in the country to a 27-month high with targeted stimulus measures while Europe, which buys 20% of global zinc supply, along with Japan is expected to boost demand particularly in the automotive sector and for use in value-added steel products galvanised with zinc.

Sister metal lead gained 4% in July, but has not benefited to the extent of zinc this year, despite the fact that zinc mine closures in 2015 will also negatively affect lead supply.

Zinc, Lead buoyed as value hunters tune into global growth story

* Zinc correction looms; upside potential intact near term-Triland

* LME may quickly implement new warehousing rules, if appeal won-sources

* Coming Up: U.S. Consumer confidence for July at 1400 GMT

Zinc prices matched three-year highs hit the session before on Tuesday and lead inched to a new 17-month top as investors ploughed into metals that have lagged this year and appear undervalued on prospects of reviving global growth.

Manufacturing growth in the world's top metals user China expanded at its fastest clip in 18 months in July, an initial survey showed, while in general the U.S. economy has gathered pace, with a brightening picture seen in its labour market.

This week, second quarter growth in the United States, a jobless report, and an official reading of China's factory health are expected to show fresh signs that a global economic revival has taken hold.

"The macro environment is improving, putting base metals on a solid footing going into the second half, but it's not enough to tighten up the complex as a whole so the market is focusing on those with supply side issues. Clearly zinc and lead are some with the biggest," said ANZ strategist Daniel Hynes in Sydney.

Zinc supply in particular would suffer with several top mines drying up, including Century in Australia, while a recovering construction industry would revive demand from galvanisers.

"The direction is right. It's probably gone a lot quicker than I expected which opens it up for some profit-taking (but)...I wouldn't expect to see a significant sell off," he added.

Three-month zinc on the London Metal Exchange matched Monday's three-year peak of $2,416, signalling investors' appetite for the contract that has jumped nearly nine percent in July.

"The theme from the physical trading community is that zinc has risen too far, too fast... and that the market has to correct downwards. We know that it will, the question is just how high it goes first," said broker Triland in a note.

LME lead rose to $2,305, a new top since late February 2013. Prices moved into positive territory for the year in July and are now up almost four percent for the year.

Lead on the Shanghai Futures Exchange (ShFE) climbed as much as 2 percent, adding to 5 percent gains a day earlier, before trimming gains to 1 percent at 15,320 yuan ($2,500) a tonne by 0228 GMT.

LME copper edged up 0.1 percent to $7,124.50 after small losses in the previous session.

U.S. economic growth likely rebounded in the second-quarter from a winter-induced slump at the start of the year and will probably continue to gather momentum through the rest of 2014. The reading is due on Wednesday.

Elsewhere, the London Metal Exchange (LME) is likely to move quickly to implement its tough warehousing rules to cut backlogs if it is successful at an appeal hearing this week, metals market sources said.

China's MMG to Cut 2014 Zinc Output due to Increasing Prices

MMG Limited of China decided to curb its 2014 zinc output due to the increasing prices of metal because of the limited supply.

The company’s century mine of Australia is planning to run dry next year, which removes about half-million tonnes of zinc from the 13 million tonne global market. This results an increasing price for the metal.  The mine is the world’s largest zinc source.

This made the mining giants Nyrstar and Glencore to find out new zinc source so as to meet up with the Chinese zinc demand for rust proofing the new cars and to coat steel. In this week, LME-three month zinc traded at its highest price, which is the highest in almost three years. Since March end, the prices have increased 20 pct.

The company cut production output targets of zinc concentrate from 600,000 to 625,000 to between 575,000 tonnes and 600,000 tonnes due to the slow performance at Century mine in the second quarter this year. The Q2 output of the zinc decreased by 13 pct year on year to about 110.891 tonnes. Refiners of Nyrstar are the major buyers of Zinc mines at MMG.

MD of MMG, Mr. Andrew Michelmore said that what they were seeing at present was a recognition that not only Century but also number of other mines were closing down and supply of the zinc concentrate was going to be tighter and tighter. Duglad River deposit in Australia, which is now subjected to an assessment of future enhancement, will partially replace the lost production output from Century.

Big Brunswick and Perseverance mines closure in Canada caused zinc lost of about 335,000 tonnes last year. Due to depletion, old mines in Africa and Europe also get closed. Zinc is mainly used as an anti-corrosive in the galvanizing process.

The global zinc metal market declined to 194,000 tonne deficit the first five months to May 31, according to the International Lead and Zinc Study Group. This is above 10 times the deficit reported in the first 11 months of the year 2013.

Zinc premium seen to stay with rising Asia demand

Rising zinc demand in Asia is pulling supplies East, sustaining premiums paid by the region's steelmakers for the rest of the year, said Japan's top producer.

Mitsui Mining & Smelting has seen surcharges for recent spot deals near the levels in its long-term contracts, said Osamu Saito, a general manager of the company's business department. Those premiums for annual supplies rose up to 70 per cent year on year, compared with a 15 per cent gain in 2013, the company said in February.

"The current higher premiums in Asia will remain at least until the end of this year," Saito said. "Supplies in the region will continue to remain tighter."

Japan's shipments are declining because of strong demand at home and South Korea's exports are falling while China's imports are rising, he said.

Japan's exports of special higher-grade zinc used to prevent steel from rusting have dropped to the lowest since 2011 while China has been buying the metal at the quickest pace in five years. Zinc stockpiles on the London Metal Exchange have declined 29 per cent to the lowest since December 2010, with inventories in Europe falling the fastest.

The metal has risen 12 per cent this year, the second-best performer among six main metals traded on the LME.

Morgan Stanley forecast global demand will exceed supply by 300,000 tonnes next year, a third annual deficit. Cash prices will average US$2,123 a tonne this year and US$2,348 next year, the bank said in a report.

China imported 310,974 tonnes of refined zinc during the first five months of this year, up 27 per cent from the same period in 2013 and at the fastest pace for that time of year since 2009, data from the General Administration of Customs show. China, which is the biggest user of the metal, may import up to 800,000 tonnes this year, compared with about 624,000 last year, Saito said.

China has begun pulling the metal from Europe as its demand rises and supplies from the region decline. Belgium and the Netherlands, which shipped no zinc to China last year, joined Spain among the country's top 10 suppliers this year, according to Mitsui Mining & Smelting's analysis of the figures.

"We've heard that some metal was shipped to China from LME warehouses in New Orleans," Saito said.

"If it's true, stockpiles are now moving into China from the US as well as Europe and this would give strong evidence that current premiums are high enough to cover costs" to ship the metal to Asia.

London zinc hits near 3-year top on supply worries

* Shanghai zinc hits highest in 17 months
* Zinc, aluminium rallies unlikely to be sustained - Citi
* Aluminium cash prices reach highest vs benchmark since 2012

London zinc prices jumped to their highest level in almost three years on Monday amid prospects of falling mine supply, while copper prices steadied after four weeks of gains.

Given a generally brightening outlook for global demand, investors have been allocating funds to commodities that are expected to be in tight supply.

Zinc prices in both London and Shanghai have jumped more than 4 percent this month, while London copper and aluminium futures have climbed by more than 2 percent over the period.

"There is a structural story that people seem to buy into on zinc because we are losing supply in closures of huge mines such as (Australia's) Century. Then you have the technical signals which are also bullish," said analyst Dominic Schnider of UBS Wealth Management in Singapore.

Century mine is the world's second largest zinc mine, and is scheduled to run dry in three years. It yielded 105,279 tonnes of zinc in the first quarter, down 31 percent from the previous quarter and 21 percent on a year ago. [ID:nL3N0DH0G6]

Zinc futures on the London Metal Exchange (LME) rose to $2,325 a tonne, the loftiest since August 2011. Prices could target $2,450 in the short to medium term, Schnider said.

Shanghai zinc ended up 0.9 percent at 16,410 yuan

($2,600) a tonne, having earlier reached 16,550 yuan a tonne - the highest since February 2013.

But uncertain demand from China, the world's top consumer of most commodities, is expected to cap gains in metal prices

"Sluggish growth in galvanised steel sheet production in China year to date ... and subdued Chinese construction do not support a bullish demand picture," Citi said in a research note.

"We expect a short-term correction and as such we forecast zinc to trade at around $2,000-2,200/t on a 3-6 month view."

Markets will be watching for China's money supply figures this week which may flag an improvement in factory activity in the coming months.

China's fiscal expenditure surged 26.1 percent in June from a year earlier to 1.65 trillion yuan ($265.84 billion), reflecting government efforts to speed up spending to shore up the economy.

China's GDP and industrial output figures on Wednesday this week will also give fresh direction.

LME copper was barely changed at $7,150 a tonne by 0723 GMT, after ending marginally higher last week. The most-traded September copper contract on the Shanghai Futures Exchange slipped by 0.2 percent to 50,670 yuan a tonne.

Reflecting improved investor appetite for copper, hedge funds and money managers raised their bullish bets on copper futures and options in the week to July 8, according to data from the Commodity Futures Trading Commission. In aluminium, prices have been driven by scant spot market supplies, which propelled cash prices to the highest against the benchmark since December 2012 on Friday .

LME aluminium was up slightly at about $1,946 per tonne, after rising for the past two weeks.

Higher cash prices will curb marginal profits for some financing deals that have locked metal away from the market, suggesting more stocks may be delivered to LME inventories.

"Producer selling appears to have capped the recent rally," Citi said. "We now see little prospect of prices now sustaining upside moves outside a $1,850-$1,950/t price range in H2."

Zinc Prices Rises to 35-Month High as Inventories Shrink.

Zinc prices rose to a 35-month high as inventories dwindled amid speculation that increasing auto sales in China and the U.S. will boost metal use.

Zinc stockpiles monitored by the London Metal Exchange have dropped 29 percent this year to the lowest since December 2010. Auto sales in China climbed 14 percent in June, an industry group said yesterday. In the U.S., new-vehicle demand surged in May and June, Bloomberg Industries said.

“Demand, particularly in the U.S., probably picked up,” Patricia Mohr, a commodity market specialist at Scotiabank Group in Toronto, said in a telephone interview. “We’re seeing a bit of a recovery in industrial production in the U.S., largely linked to strong auto production. It’s probably reasonably good in China as well.”

Zinc for delivery in three months gained 0.8 percent to settle at $2,282 a metric ton at 5:50 p.m. on the LME. Earlier, the price reached $2,318.50, the highest since Aug. 5, 2011.

The International Zinc Association says the metal is used to coat medium-gauge steel sheet used in auto-body panels. The price has gained 21 percent in the past 12 months.

Zinc, copper and lead markets already face supply deficits while nickel and aluminum are heading for shortfalls, Morgan Stanley said in a report dated today. Zinc is poised for “continued outperformance as the deficit intensifies and global auto sector strength drives demand,” the bank said.

Copper rose 0.1 percent to $7,130 a metric ton ($3.23 a pound) in London. Earlier, the price reached $7,212, the highest since Feb. 19.

The discount for a grade of scrap containing 99 percent of copper narrowed to as low as 4 cents a pound, the smallest in two years, from 8 cents in April as demand increased, Bryan Rosenstrauch, the president of Comm Trade USA Inc., a brokerage in Houston, said yesterday.

On the Comex in New York, copper futures for September delivery fell 0.1 percent to $3.257 a pound. The price climbed 5.1 percent in the past 12 months.

Nickel, lead and aluminum gained in London. Tin dropped.

Zinc Breaks Through: Demand, Scarcity Create Bull Market

Zinc has surged 12% in the past 2 months. The metal might reach a 3-year high soon, and that could finally allow Zinc prices to increase to new levels. As we commented 2 weeks ago, the metal was showing a bullish technical pattern and we would expect it to keep going up.

3M LME Zinc price since 2013

The fundamental picture supports a bullish attitude. Demand is expected to keep growing for the coming years, while the looming closure of major mines such as Century in Australia and Lisheen in Ireland next year due to mineral depletion, has most analysts predicting the deficit of this year only getting worse in the years to come. In the meantime, mining companies have been slow to open new zinc mines and LME stocks fell last week to a three-year low.

Commodities and, in particular, base metals have been in a falling market since the spring of 2011 and that’s also a reason why zinc hasn’t been able to turn its price around ever since. However, commodities made a key upward move this year and some industrial metals have already started to show some life. A further recovery in commodities and the metals sector will definitely help zinc on its way up.

3M LME Zinc Price since 2011

We have seen many times that prices can move in the opposite direction of what the fundamental picture is saying. This is because many of these fundamentals are already discounted in the price and that is why, despite of having a fundamental opinion of the future, you should always wait for price actions before making purchasing decisions.

What This Means For Metal Buyers

Zinc is at its highest level since February 2013 and chances are that it breaks to a new three-year high. The fundamental and technical pictures are pointing to higher prices. If zinc manages to push onto new ground, we recommend buyers take their risk off the table and start taking long-term positions as prices will likely trend upward.

Zinc Approaches 16-Month High in London as Supples Fall

Zinc rose, trading near a 16-month high, as inventories in warehouses tracked by the London Metal Exchange declined amid signs of improving demand.

Stockpiles fell for a fourth session, extending a slide to the lowest since December 2010. Zinc, used in everything from brass plumbing fixtures to steel car parts, has gained 10 percent this quarter amid signs of recoveries in manufacturing and housing. U.S. new-home sales posted the biggest one-month gain since 1992 in May, while American factories received more orders for business equipment, government data showed this week.

“There’s some demand influences and some supply influences” pushing zinc prices higher, Michael Turek, a senior director at Newedge USA LLC in New York, said in a telephone interview. “There’s genuine demand for it. The industrial performance in the U.S. is quite robust.”

Zinc for delivery in three months climbed 0.4 percent to settle at $2,190.50 a metric ton by 5:50 p.m. on the LME, after reaching $2,195.50. On June 23, prices climbed to $2,198, the highest since Feb. 15, 2013.

Copper for delivery in three months rose 0.6 percent to $6,955 a ton ($3.15 a pound) on the LME. On the Comex in New York, copper futures for delivery in September gained 0.2 percent to $3.172 a pound. Prices advanced for a 10th session, the longest rally since June 2005.

Inventories monitored by the LME have fallen 57 percent this year to the lowest since August 2008.

Nickel and lead climbed in London. Aluminum and tin fell.