Zinc Faces Price Swings as Supply Chain Tightness Intensifies
Zinc prices are seeing increased volatility as tightening supply conditions leave buyers exposed to sudden changes in availability. Last week, the metal, which is widely used to galvanize steel, experienced turbulent trading on the London Metal Exchange (LME), ending almost 5% higher despite a 2.5% drop on Thursday. The price spike was driven by large withdrawals from LME warehouses, fueling speculation of a possible squeeze on short-position holders.
Supply issues are expected to persist into next year, potentially causing more price swings. Analysts at Guotai & Junan Futures Co. noted that any production cuts by miners or smelters could lead to additional short-term price spikes, while the level at which buying on dips is considered safe continues to rise. Zinc prices fell 0.4% to $3,091 per ton on the LME as of late Monday morning, influenced by a stronger dollar.
The dynamics of the zinc market resemble those of copper, with Chinese smelters struggling due to poor profitability after a rapid expansion in capacity. This has resulted in fierce competition for raw materials, raising the stakes for ongoing annual ore supply contract negotiations.
Zinc has emerged as the top-performing metal among the LME's base metals this year, up about 16% year-to-date. Supply issues and production disruptions at major mines, including Ivanhoe Mines' Kipushi project in the Democratic Republic of the Congo, have tightened availability. Meanwhile, China's demand for zinc remains muted amid a downturn in the steel and property sectors.
The recent withdrawal of large zinc volumes from LME warehouses has captured traders' attention. According to sources, trading giant Trafigura Group was behind last week’s significant withdrawals. Market participants are closely watching whether these canceled inventories will be re-registered at LME warehouses or directed off-exchange for consumption.
Zinc inventory levels also fell on the Shanghai Futures Exchange, with a drop of more than 9,000 tons last week—the largest weekly decline in nearly a year. Despite the challenges, zinc supply pressures have helped it outperform other industrial metals, including copper, which declined 0.3% on the LME on Monday.
