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Zinc slumps on jump in inventories and weak Chinese demand

Zinc prices slid on Friday after a surge in inventories and as metals demand in China remained lacklustre despite the world’s top metals consumer having scrapped COVID-19 controls.

Three-month zinc CMZN3 was the biggest loser on the London Metal Exchange (LME) as it dropped 1.7% to $3,325.50 a tonne by 1110 GMT, having gained 12% so far this year.

Zinc stocks on the LME have sunk to the lowest levels since 1989 but have soared in China.

Inventories in warehouses registered with the Shanghai Futures Exchange ZN-STX-SGH have more than doubled to 91,616 tonnes since Jan. 20, data showed on Friday in the first such report since China’s Lunar New Year holiday.

That was evidence that metals demand in China will take time to increase, said Edward Gardner, commodities economist at Capital Economics.

“We think that metals prices will struggle to make gains this quarter, (and) if anything fall a little bit, before starting a more sustainable upturn around the middle of the year,” he said.

“Zinc is not just used for helping to produce steel, but it is used in many consumer goods; and with advanced economies entering or flirting with recession in the first half, demand will be weak early this year.”

LME copper CMCU3 was more resilient, adding 0.4% to $9,089 a tonne, supported by worries that disruptions in major copper producing regions Latin America and Africa could tighten supply.

An expected halt to output at the huge Las Bambas copper mine in Peru, however, has yet to cause too much concern at Chinese smelters.

“The news has sent treatment charges offers lower, but trading was very thin because many smelters are sitting on adequate stocks and not concerned about their first-quarter supply,” a source at a Chinese smelter said.

Miners pay smelters treatment charges to process concentrates into refined metal.

Investors were awaiting U.S. expected to show an increase of 185,000 jobs. The data is due at 1330 GMT.

Among other metals, LME aluminium CMAL3 lost 1% to $2,591.50 a tonne, nickel CMNI3 was down 0.7% at $29,585, tin CMSN3 dropped 1.8% to $28,850 and lead CMPB3 firmed by 0.1% to $2,136.
Source: Reuters (Reporting by Eric Onstad Additional reporting by Siyi Liu and Dominique Patton in Beijing Editing by David Goodman )

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