Off The Wire
METALS-Deficits on the horizon drive zinc to 10-year peak
* LME/ShFE arb: * LME zinc stocks down 70 percent since Sept. 2015
* Cash to threes zinc backwardation highest since Nov. 30
(Adds closing prices)
By Pratima Desai
LONDON, Jan 2 (Reuters) - Zinc scaled 10-year peaks on Tuesday as the market focused on looming deficits due to falling supplies, but gains were capped as prices are at levels which are likely to encourage investment in new output.
Benchmark zinc ended up 0.9 percent at $3,349 a tonne from an earlier $3,352, its highest since August 2007, before the financial crisis hit demand for the metal used to galvanise steel.
"Demand growth is decent, but not spectacular from a historical perspective, which tells me this is once again a supply side issue," said Bernstein analyst Paul Gait.
"Years of under-investment have caught up. We could see a further price acceleration in the short term, but current levels should generate sufficient capital inflows to generate new supply to meet demand."
CHINA: Zinc imports by the world's largest consumer jumped to above 573,000 tonnes in the first 11 months of last year, up 43 percent from the same period of the previous year. ENVIRONMENT: China's war on smog cut local output of zinc last year and is expected to again cut supplies in 2018.
STOCKS: Shortages have led to a drawdown of inventories in LME-approved warehouses , which at 180,975 tonnes are down 70 percent since September 2015. Stocks in warehouses monitored by the Shanghai Futures Exchange at 68,630 tonnes are down 65 percent since March last year.
PREMIUM: Jitters about a shortfall on the LME market pushed the premium for the cash over the three-month contract to $24 a tonne, its highest since Nov. 27.
WARRANTS: Traders are watching a large position holding between 30-39 percent of zinc stocks and cash contracts on the LME system. TECHNICALS: Trendline support comes in around $3,280, while strong resistance is at $3,570, the high from August 2007 and the upper 30-day Bollinger band.
DOLLAR: Overall, base metals were supported by a lower U.S. currency, which when it falls makes dollar-denominated commodities cheaper for non-U.S. firms. MANUFACTURING: Optimism about Chinese demand was boosted by an unexpected December rise in manufacturing and a pick up in new orders. But higher prices for raw materials and firms cutting staff have fuelled concerns about growth. "The PMIs ended 2017 on a strong note," Capital Economics analysts said in a note. "But if the past couple of quarters are any guide, this may not translate into an improvement in the hard data."
PRICES: Copper slipped 0.6 percent to $7,206 a tonne, aluminium fell 0.1 percent to $2,264.5, lead rose 3.3 percent to $2,570, tin gained 0.1 percent to $20,040 and nickel slipped 1.1 percent to $12,620.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Top Base and Precious Metals Analysis - GFMS LME/ShFE arb: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Pratima Desai; Editing by Adrian Croft and Mark Potter)