Zinc Extends Best Rally in Seven Years Amid Tightening Supply

  • Orders to withdraw metal climb to highest since February
  • Chinese factory data show improving economy, helping metals

Zinc advanced after posting its longest string of monthly gains in seven years amid signs that production will trail demand.

Orders to withdraw the metal from warehouses tracked by the London Metal Exchange rose to the highest since February. Glencore Plc, one of the biggest commodity traders, said it expects tighter supply for zinc. Reports Thursday showed China’s official factory gauge matched a post-2012 high, while U.S. manufacturing expanded in November at the fastest pace in five months.

Zinc, used to galvanize steel, has climbed 70 percent this year, beating the other raw materials on the Bloomberg Commodity Index, as investors price in shrinking global supply after mines shut. Production will continue to trail consumption through 2018, according to Bloomberg Intelligence analysts Kenneth Hoffman and Zhuo Zhang.

“You don’t see speculators in zinc, it’s reacting more to physical demand,” George Gero, a managing director at RBC Wealth Management in New York, said in a telephone interview. “The increase in canceled warrants is a sign of physical demand.”

  • Zinc for delivery in three months climbed 1 percent to $2,728 a metric ton at 5:52 p.m. on the LME. Prices climbed 9.8 percent last month, the steepest advance since April 2015.
  • Copper fell as much as 3.4 percent in London after surging 20 percent in November, its best month in a decade.
  • Aluminum, nickel and lead also fell on Thursday, while tin gained.

Some investors who piled into last month’s metals rally are locking in some of their gains on the view that the surge driven by speculation of rising U.S. and Chinese demand moved too fast, Herwig Schmidt, a London-based analyst at Triland Metals Ltd., said by phone.

“Now, we face a reality check,” he said.

— With assistance by Martin Ritchie, and Winnie Zhu

    Before it's here, it's on the Bloomberg Terminal.