February 10, 2020 / 11:32 AM / 15 days ago

METALS-Zinc sinks to multi-year low on inventory jump and China fears

* Lead hits lowest since June last year

* Copper treatment charges reach eight-month peak (Updates with closing prices)

By Eric Onstad

LONDON, Feb 10 (Reuters) - Zinc prices lurched on Monday to their lowest since July 2016 after a surge in inventories and worries over demand in China as cases of the coronavirus grow in number.

Zinc stocks in warehouses certified by the London Metal Exchange (LME) hit their lowest in nearly three decades last week, but analysts said this was deceptive because a lot of metal was being held in other depots.

Annual contract negotiations had constrained metal flows but those have now been concluded, said Oliver Nugent, an analyst at Citigroup in London.

“Metal that was being held back before contract negotiations were finished is now coming on the market and, combining with weakness in Chinese import orders, that’s putting pressure on LME prices,” he said.

Three-month LME zinc slipped 0.5% to $2,135 a tonne in final open-outcry trading after hitting $2,117, its lowest since July 8, 2016.

With the coronavirus death toll above 900, the World Health Organization said the number of cases outside China could be “the tip of the iceberg”.

Citibank has become more cautious about the impact of the virus on demand in China, the world top consumer of metals, Nugent said.

“If you tally up the provinces that so far show the largest amount of cases, the potential demand hit is really quite severe. We calculate that the seven worst provinces have about 40% of GDP, 40% of property new starts and 70% of air conditioner production.”

Air conditioning units require large amounts of copper.

* ZINC STOCKS: LME zinc inventories MZNSTX-TOTAL shot up on Monday to 71,150 tonnes, the highest since August last year, bringing the gains over the past week to 43%.

Stocks in warehouses monitored by the Shanghai Futures Exchange nearly doubled to 97,922 tonnes over two weeks, it said on Friday.

* ZINC SPREAD: The discount of cash LME zinc to the three-month contract CMZN0-3 rose to $4.50 a tonne, its highest since last August and compared with a premium of $23.75 about three weeks ago. This indicates a rise in supplies of metal in the LME system.

* COPPER: LME copper edged up 0.1% to finish at $5,667 a tonne, though Nugent expects further losses. Citibank forecasts that copper will touch a low of $5,300 during the first quarter before recovering later in the year.

* COPPER CHARGES: Spot charges for processing copper concentrate in China have risen to their highest in eight months owing to the coronavirus outbreak.

* LEAD: LME lead shed 1.2% to close at $1,796, its lowest since June 3 last year.

The net speculative short position of LME lead has grown to 3.4% of open interest, though this is modest compared with last year’s peak short of 27%, Alastair Munro at broker Marex Spectron said in a note.

* PRICES: LME aluminium dropped 1.4% to close at $1,702 a tonne, nickel gained 0.9% to $12,885 and tin was up 0.9% at $16,325.

* For the top stories in metals and other news, click or (Reporting by Eric Onstad Editing by Mark Potter and David Goodman)

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