Metals head for record, zinc spikes as energy crisis hits supply

LONDON (BLOOMBERG) – Base metals soared, led by zinc’s surge to its highest price since 2007 after European smelters became the latest casualties in a global energy crisis that’s knocking supply offline and heaping pressure on manufacturers.

Zinc rose as much as 6.9 per cent on the London Metal Exchange, and a gauge of six industrial metals closed in on an all-time high. Aluminum, one of the most energy-intensive commodities, is at the highest since 2008. Copper bounced closer to the US$10,000-a-ton mark, and spreads are pointing to a sharply tighter market – spot copper contracts are trading at the biggest premium over futures in nearly a decade as global inventories shrink.

Metal supply cuts are spreading from China to Europe, as energy shortages drive up costs for electricity and natural gas, threatening more inflationary pressure from rising commodity prices. The latest big catalyst came on Wednesday when Nyrstar – one of the biggest zinc producers – said it will cut output at three European smelters by up to 50 per cent due to rising power prices and costs associated with carbon emissions.

So far, the energy crisis has had an outsized impact on supply, but concerns about demand are also rising fast as manufacturers face a simultaneous surge in raw material prices across the board. The CRB BLS US raw industrials spot index hit an all-time high on Wednesday (Oct 13), reflecting surging prices for raw materials like hides, tallow and metals scraps that don’t trade on futures exchanges.

“It is zinc’s turn” to surge as the energy crisis creates large-scale shutdowns or production cuts at smelters, said Jia Zheng, a trader with Shanghai Dongwu Jiuying Investment Management Co. Power curbs are also expanding to China’s main zinc producing provinces, she said. Some Chinese smelters had already reduced runs as they grapple with an electricity shortage fueled by record coal prices.

Zinc was up 3.2 per cent to US$3,506.50 a metric ton on the London Metal Exchange as of 2:34pm local time. In Shanghai, prices surged 7.1 per cent, their daily limit, to 25,700 yuan a ton.

Prices may stay elevated as the energy crisis continues to impact the metals market, researcher Shanghai Metals Market said in a note on Thursday. A surplus in the global zinc market was already expected to narrow next year before the latest cuts, according to the International Lead and Zinc Study Group.

Copper climbed as much as 3.6 per cent to US$9,994.50 a ton in London amid signs of acute tightness in supply.

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