October 28, 2019 / 1:28 PM / 17 days ago

METALS-Zinc rises towards 4-month high as stocks fall

* GRAPHIC-2019 asset returns: tmsnrt.rs/2jvdmXl

* Premium for cash over 3-month zinc contract elevated (Updates prices)

By Pratima Desai

LONDON, Oct 28 (Reuters) - Zinc prices climbed towards 4-month peaks on Monday as slumping stocks fuelled fears of shortages, while copper hovered near five-week highs on hopes of progress in trade talks between the United States and China.

Benchmark zinc on the London Metal Exchange was untraded in the closing rings, but was bid up 1.3% to $2,542 a tonne.

Prices of the metal used to galvanise steel earlier touched $2,549, moving back towards last week’s peak of $2,567.35, which was the highest since June 14.

“Visible zinc stocks are minimal, I can’t remember the last time they were so low,” a metal trader said. “Copper is looking at developments on the U.S-China trade front with optimism.”

Copper, used by investors as a gauge of economic health, was down 0.3% at $5,908 a tonne, having earlier touched a session high of $5,927.

STOCKS: Zinc inventories in London Metal Exchange-registered warehouses are at 57,775 tonnes. They fell to 50,425 tonnes in April, the lowest since the 1990s. MZN-STOCKS

Also supporting prices are cancelled warrants - metal earmarked for delivery and so no longer available to the market - at nearly 43%. MZNSTX-TOTAL

SPREADS: Concern about the availability of zinc on the LME market has created a premium of $44 a tonne for the cash over the three-month contract, close to the $50 a tonne seen in September CMZN0-3.

BALANCE: Global zinc demand is estimated at around 14 million tonnes this year. Some analysts expect an annual deficit of around 200,000 tonnes.

“The slight resurgence of tightness in the ex-China zinc market is likely temporary and any macro-related risk-on rally is likely to present another opportunity to sell in to strength,” Citi analysts said in a note.

“For producers who missed an earlier rally cry to hedge, the next 3-6 months are likely to provide (another) chance.”

TECHNICALS: Zinc prices face heavy resistance at $2,545, where the 200-day moving average currently sits, followed by $2,575, the 50% Fibonacci retracement level of the April to September slide.

TRADE: U.S. and Chinese officials are “close to finalising” some parts of a trade agreement after high-level telephone discussions on Friday, the U.S. Trade Representative’s office and China’s Commerce Ministry said.

“A stuttering global industrial economy continues to weigh on many commodity prices,” analysts at BMO Capital Markets said in a note. “While government policy is increasingly supportive, weak manufacturing orders mean 2020 demand expectations have been lowered once more.”

INDONESIA: Nickel briefly reversed early losses after Indonesia’s nickel miners agreed to stop nickel ore exports immediately. Last month Jakarta brought forward a ban on shipments to January 2020 from 2022.

It was down 0.8% at $16,640.

PRICES: Aluminium was up 0.5% at $1,736 a tonne, while lead rose 0.6% to $2,236 and tin gained 0.3% to $16,725. (Reporting by Pratima Desai; Editing by Kirsten Donovan and Jan Harvey)

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