Zinc jumped to its highest in two weeks on Monday as falling inventories and rising power prices boosted sentiment on the metal used to galvanise steel. Benchmark three month zinc on the London Metal Exchange was up 1.5 percent to 3,800.50 dollars a metric ton as of 1030 GMT, having earlier hit 3,821 dollars, Reuters reported. Overnight, LME zinc rose a further 2.12 percent and SHFE zinc rose 0.99 percent, Shanghai Metals Market reported, leading the base metals complex while nickel fell for a third day.
The tightness is in deliverable stocks. Shanghai Futures Exchange inventories have fallen to 137,139 tonnes, their lowest since March, and on warrant LME stocks are 133,700 tonnes, with the cash LME contract trading at a premium of roughly 104 dollars a tonne over the three month contract. That backwardation makes it expensive to roll a short hedge forward, so the scarcity shows up first in time spreads and physical premiums paid by galvanised steel supply chains, before it necessarily shows up in the benchmark.
Rising power prices add a cost leg, because zinc smelting is energy intensive, so higher power costs support the price from the supply side at the same time as low stocks support it from the inventory side. The move contrasts with the prior week, when LME zinc stocks had risen sharply on Chinese export arrivals, which is why the drawdown, not the level alone, is the signal traders are following.