(Updates with closing prices)
By Peter Hobson
LONDON, July 4 (Reuters) - Zinc prices fell to their lowest in two weeks on Thursday as rising Chinese production and a collapse in the premium for cash metal on the London Metal Exchange (LME) pointed to a better supplied market.
Benchmark zinc on the LME ended down 1% at $2,425 a tonne, within a whisker of last month’s level of $2,412, the lowest in 5-1/2 months.
The metal used to galvanize steel has tumbled more than 30% from a high early last year as a U.S.-China trade war weakened the demand outlook and traders braced for a surge of refined metal to end a supply shortfall.
Rising Chinese output, rumours that zinc is moving from Chinese bonded storehouses into the LME warehouse system and a big fall in the premium for LME cash zinc were pushing prices lower, Deutsche Bank analyst Nick Snowdon said.
“You could see more downside to the low $2,000s,” he said, adding that prices were unlikely to fall much lower because of the low level of warehouse stocks.
DEFICIT: Higher output by Chinese smelters is expected to end a deficit that according to the International Lead and Zinc Study Group (ILZSG) amounted to 97,000 tonnes during the first four months of this year.
CHINESE OUTPUT: Chinese refined zinc output at 480,000 tonnes was up 7.4% in May compared to the same month in 2018.
Global production of zinc is around 13.5 million tonnes a year.
SPREAD: The premium for cash zinc over the three-month contract on the LME fell to $9.50, down from more than $150 in May and the lowest since March, suggesting greater availability of nearby metal. MZN0-3
STOCKS: Zinc inventories in LME and Shanghai Futures Exchange (ShFE) warehouses fell in recent months to the lowest in more than a decade, but levels have begun to recover. MZNSTX-TOTAL ZN-STX-SGH
TRADE WAR: Top representatives of the United States and China are organising a resumption of talks for next week to try to resolve a year-long trade war between the two countries, Trump administration officials said.
GLOBAL FACTORIES: Data this week showed factory activity weakening in major economies around the world.
U.S. ECONOMY: The United States added fewer jobs than expected in June and its trade deficit jumped in May, suggesting economic growth slowed sharply in the second quarter.
OTHER METALS: LME copper closed flat at $5,920 a tonne, aluminium rose 1% to $1,807 and tin finished up 0.2% at $18,350.
Nickel did not trade in closing rings but was bid down 0.1% at $12,340. Lead also did not trade and was bid 0.1% lower at $1,878.
Reporting by Peter Hobson; Additional reporting by Mai Nguyen; Editing by Mark Potter and Alexandra Hudson/Emelia Sithole-Matarise