Chinese Zinc Threatens Biggest Jump in 5 Years: Chart of the Day

Surging Chinese zinc exports risk undermining price gains that have set the metal up for its biggest advance in five years, according to Natixis SA.

The CHART OF THE DAY shows China’s refined zinc shipments rose to the highest since April 2011 in July as prices reached an almost three-year high. The country’s imports of the metal fell last month and the premium Chinese buyers pay to obtain zinc dropped the most since September 2012. Zinc has rallied 15 percent this year, set for the largest gain since 2009, making it the third-best performer on the London Metal Exchange.

“Price dynamics have been increasingly supportive for Chinese metal producers over the past few months, encouraging many to increase output as profitability improves,” said Nic Brown, head of commodities research at Natixis in London. “Where domestic demand is not strong enough to absorb this increased output, it is increasingly being exported. There are growing near-term risks of a correction.”

China’s refined zinc exports almost tripled to 10,052 metric tons in July, a fourth straight monthly increase and following an almost 10-fold surge in June, customs data showed yesterday. This year’s exports are already four times the total in 2013, while July imports, at 41,681 tons, are 54 percent below a 4 1/2-year high set in January, the data show.

Declining premiums in Shanghai indicate Chinese supply is abundant and there’s still “substantial” spare capacity in the country’s smelting industry, Brown said. While export volumes remain much less than inbound shipments, the amount shipped out will be increasingly important for prices, he said.

Zinc, mostly used to rustproof steel, traded at $2,356.50 a ton on the LME yesterday. It reached $2,416 on July 28, the highest since August 2011.

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