Zinc is proving to be an outlier among industrial metals whose 2016 outlook looks dim due to supply overhangs and lagging economic growth.
The price for the metal used for rustproofing steel is outperforming copper, aluminum and iron ore as banks and traders anticipate price gains due to a shortage.
On Friday the London Metal Exchange benchmark price hit US$2,104.5 a tonne, but earlier in the day prices reached US$2,116, the highest level since July 15, 2015.
Thanks to last year’s closure of large zinc mines in Ireland and Australia, demand is outpacing supply by a wide margin. According to the International Lead and Zinc Study Group, total world zinc stocks in April were about 1.5 million tonnes, compared to global demand of roughly 14 million tonnes.
The metal has gained 15 percent this quarter – its best Q3 since 2010 – and is up 30 percent year to date.
However, some analysts are cautioning that the lofty prices may not be sustainable, with zinc stocks in LME warehouses up over 16 percent this year.
“Supply is tightening and demand, though not spectacular, seems to be chugging along nicely. But prices do look a little overcooked,” Graham Deller, head of zinc research at consultancy CRU, told AAP.
“Stocks are plentiful. I don’t think any consumer wanting extra tonnage will have any trouble.”
The publication notes that much of the price rise in recent weeks is attributable to funds “jumping on the bandwagon” rather than fundamentals. It expects resistance at US$2,180 per tonne.