Zinc Climbs to 3-Month High as Supplies Tighten After Cutbacksby
All main industrial metals gain on London Metal Exchange
Zinc is poised for deficit next year after output cuts
A rally for industrial metals sent shares of mining companies to the biggest gain since August. Zinc reached a three-month high.
The 22-member Bloomberg Americas Mining Index climbed as much as 6.6 percent, with gains for First Quantum Minerals Ltd. and Freeport-McMoRan Inc. Zinc rose for a fourth straight session as copper, aluminum, nickel, lead and tin advanced on the London Metal Exchange. The dollar weakened against a basket 10 major currencies by the most since March, boosting the appeal of commodities as alternative investments.
Industrial metals slumped 27 percent last year as China’s economic slowdown heightened demand concerns, prompting mining companies from Glencore Plc to Freeport to shutter production, some of which had become unprofitable. In the case of zinc, the cuts will spur the biggest deficit in a decade, pushing prices higher in 2016, Mitsui Mining & Smelting Co., Japan’s top supplier of the metal, said in January.
“The U.S. dollar is actually getting hit quite hard, and you’re seeing the base metals correlate a bit to that,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “If you’re going to look at the industrial metal sector, zinc should continue to outperform, just based on how tight that supply and demand balance is.”
Freeport, the largest publicly traded copper producer, climbed as much as 11 percent, as prices of the metal advanced in London and New York. First Quantum surged as much as 15 percent, while Lundin Mining Corp., which produces, copper, zinc, lead and nickel, gained almost 7 percent.
Zinc for delivery in three months climbed 1.3 percent to settle at $1,696 a metric ton at 5:51 p.m. on the London Metal Exchange. It earlier touched $1,698.50, the highest since Nov. 4, and is up 5.4 percent this year, the most among the main contracts on the London Metal Exchange. The price of the commodity for immediate delivery is near the largest premium to the three-month contract since July, a signal that there is less available material.
"After the announcements of extensive production cuts, there is likely to be a huge supply deficit on the global zinc market this year," Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said in an e-mailed note. "This justifies much higher prices."