Zinc scrapes 5-year low

zinc fall

Chart by Investing.com.

Zinc, until recently an outlier in a basket of depressed mining commodities due to a perceived oncoming shortage, is no longer enjoying that status.

The metal, used to rust-proof steel used in automobiles and building materials, last Monday sunk to a five-year low, due to fears over rising zinc stocks and waning demand in China. Three-month forward pricing for zinc on the London Metal Exchange dropped up to $47 to US$1637 a tonne – the lowest since June 2010.

Zinc stocks have been building up at LME warehouses in New Orleans, the Financial Times reports, climbing nearly 60 percent over the past month. Another factor weighing on the price, while not provable, is suspected selling of zinc stocks by Glencore (LON:GLEN), one of the world's largest traders and and producers of zinc.

The Swiss company earlier this month said it plans to sell about $2.5 billion in new shares and assets worth up to $2 billion, in an effort to cut as much as $10.2 billon in debt. While Glencore does not reveal which commodities it may or may not sell, the fact that its warehousing business, Pacorini Metals, dominates the storage market in New Orleans, points to a high probability it is selling zinc, according to the FT.

Up until recently the market for zinc looked promising, due to the impending closure of two large zinc mines, Century in Australia (owned by MGM Limited) and Vedanta's Lisheen mine in Ireland. According to Investing.com, while zinc spent the last two years in supply deficit, prices are now in a freefall, plunging 33 percent in five months, with supply outpacing demand.

"It’s been falling like a knife,” the FT quotes Edward Meir, an analyst at INTL FCStone in New York. “We were talking about deficits for the market this year but it’s shifting more to a balance or a surplus. The deficits keep getting pushed out.”