Zinc advances to record in London as stocks fall to 15-year low

Zinc rose to a record in London as inventory declined to a 15-year low, fueling expectations that demand for the metal used to galvanize steel will outpace production into 2007.

Stockpiles monitored by the London Metal Exchange dropped 1.6 percent to 101,350 metric tons, the lowest since April 1991, the LME said today in a daily report. Inventory is shrinking as analysts at Barclays Capital and other banks forecast demand will beat production this year.

"The main driver behind the price is a massive market deficit," said Michael Widmer, a London-based metals analyst at Calyon, one of 11 companies trading on LME's floor. "That is being reflected in the falling inventory levels."

Zinc for delivery in three months on the LME rose $70, or 1.6 percent, to $4,360 a ton at 10:47 a.m. in London. Earlier it traded at $4,400, beating the previous record set on Nov. 1 by $75. Prices have more than doubled in the past year.

Inventory is being used by zinc consumers to fill the production shortfall forecast for this year. Demand will exceed production by 310,000 tons in 2006, driven by Chinese usage, Barclays said in an Oct. 27 report.

Output is rising as companies such as Sydney-based AIM Resource Ltd. build mines to fill the shortfall. Still, Widmer said he's bullish for zinc next year, and expects the deficit to persist for at least the first "few" months of 2007.

"We won't move into surplus until the second or third quarter of 2007 and even then, it will be a statistically insignificant surplus," said Widmer. "I think we can see prices go above $5,000."

Also on the LME, copper fell $40 to $7,290 a ton and nickel slipped $800 to $30,600. Aluminium increased $15 to $2,802 a ton, lead was up $20 to $1,700 a ton and tin rose $25 to $10,050.