Shanghai Zinc Futures Drop Daily Limit as Recent Gains Overdone

By Glenys Sim

Jan. 8 (Bloomberg) -- Zinc futures fell, slumping by the exchange-imposed limit in Shanghai, as investors viewed recent gains as excessive, given the deteriorating demand outlook.

Prices jumped 12 percent in the past three days as commodities gained on optimism that government spending around the world will revive raw materials demand. Rising U.S. unemployment figures pushed industrial metal prices lower in London yesterday on concern slower growth will damp the outlook.

“There wasn’t any fundamental reason behind the rally in the past few days, so there’s little surprise to see the market giving up those gains,” Tao Jinfeng, an analyst at Jiangsu Donghua Futures Co., said today from Tianjin.

Zinc for March delivery on the Shanghai Futures Exchange closed 3.3 percent down at 10,580 yuan ($1,548) after falling 5 percent from the previous settlement price earlier.

“Stockpiles remain at high levels and are not likely to fall anytime soon given the weaker demand picture this year,” said Tao. Inventories of zinc in London Metal Exchange warehouses stood at 254,750 tons yesterday, the highest since May 2006.

An estimated 693,000 jobs were lost in December, the most since records began in 2001, Automatic Data Processing Inc. said yesterday. The median forecast of economists surveyed by Bloomberg was a loss of 495,000.

London Metal Exchange zinc fell as much as 4.2 percent to $1,236.25 a ton, extending yesterday’s 2.3 percent decline. The metal is used to galvanize steel.

Aluminum Tumbles

Aluminum, the worst-performing LME metal this year, fell as much as 2.5 percent to $1,555 a ton and last traded at $1,570 a ton. Stockpiles totaling 2.37 million tons as of yesterday were the highest since September 1994.

The metal used in automobiles and airplanes won’t get much of a lift from Alcoa Inc.’s latest production cut because of an “extreme deterioration” in demand, according to Barclays Capital.

Aluminum supply will exceed demand by 869,000 tons this year, Barclays estimates. That’s more than six times Alcoa’s cutback of 135,000 tons announced Jan. 6.

Among other LME-traded metals, copper was down 2.1 percent at $3,270 a ton, tin fell 0.9 percent to $11,500 a ton, nickel declined 3.3 percent to $11,900 a ton and lead added 0.4 percent to $1,144 a ton.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net