Zinc Rally Seen Extending as Open Interest Surges, Supply Sags

Updated on
  • Metal rallies 41% this year, second-best performer on BCOM
  • Copper, metals pare gains as crude falls; nickel declines

There’s one more indicator showing the zinc rally has legs.

Open interest, a tally of outstanding contracts in zinc on the London Metal Exchange, climbed to the highest since October. Traders are piling into the metal as inventories tracked by the bourse drop for a 19th straight session.

The metal, used to galvanize steel, has rallied 41 percent this year, offering investors the best return after silver among the 22 raw materials tracked by the Bloomberg Commodity Index. Prices surged as mine-output cuts including those at Glencore Plc reduced supply.

“You see swelling open interest, you see reserves going down and you’ve got yourself a bull market,” Peter Thomas, a senior vice president at Zaner Group LLC, a metals broker in Chicago, said in a telephone interview. “The numbers have just been very, very bullish for zinc.”

The metal for delivery in three months rose 0.4 percent to $2,275 a metric ton at 5:50 p.m. on the LME, after touching $2,299, the highest since May 2015. Prices of zinc and copper pared gains, aluminum swung to a loss and lead settled unchanged as crude oil fell. Tin gained.

Nickel slipped after trading near the highest in almost a year. The metal initially advanced after Philippine President Rodrigo Duterte told mining companies to comply with environmental standards or close. Six miners accounting for 8 percent of last year’s production have shuttered so far.

‘‘Despite all the tough talk, we doubt the Philippines will go the way of Indonesia and risk ceding a whole sector considering that mining pumps roughly $1 billion into the economy and does so with a far smaller footprint in terms of land-use versus other regional rivals,” Edward Meir, an analyst at INTL FCStone Inc. in New York, said in a note Tuesday.

Indonesia started a ban on shipments of unprocessed ores in 2014, giving Philippines a bigger market share in nickel-ore exports to China.

— With assistance by Alfred Cang, and Agnieszka De Sousa

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