Zinc Climbs for Fourth Day as Inventory Drops to 15-Year Low

Zinc, the metal used to galvanize steel, gained for a fourth straight day in London as declining stockpiles showed that production still lags behind demand.

Inventory monitored by the London Metal Exchange dropped 1.2 percent to 87,925 metric tons, the LME said today in a daily report. That's the lowest since April 1991. Consumption beat output by 167,000 tons in the nine months to September on increased demand from China, the world's largest consumer of the metal, the World Bureau of Metal Statistics said yesterday.

``Continued declines in stockpiles are positive for zinc,'' said Roy Carson, a London-based trader at Triland Metals Ltd., one of 11 companies dealing on the LME's floor. ``I'm looking for the metal to test previous highs,'' he said in an interview.

Zinc for delivery in three months on the LME rose $40, or 0.9 percent, to $4,400 a ton as of 11:40 a.m. in London. The metal has more than doubled this year, and traded at a record $4,580 on Nov. 10.

China's zinc use increased 29 percent during January to September, the Hertfordshire, England-based WBMS said. Consumers have tapped stockpiles to fill the production shortfall, and inventory has plunged 80 percent in the past year.

The declines in stockpiles have caused a supply tightness for zinc on the LME, a situation known as backwardation. The contract for immediate delivery was $82 more expensive than the benchmark- three month as of yesterday, almost double the $42 gap on Nov. 21, suggesting buyers had to pay more if they need metal urgently.

In a market with ample supplies, longer-dated contracts trade higher than nearby ones due to storage and interest costs.

Prices of zinc for immediate delivery may rise to $5,400 a ton around January due to the supply shortfall, Michael Lewis, head of commodities research at Deutsche Bank AG, said Nov. 10.

Among other LME-traded metals, copper rose $72, or 1 percent, to $6,972 a ton, nickel advanced $350, or 1.1 percent, to $31,500 and lead added $17 to $1,550. Aluminum gained $10 to $2,685 and tin advanced $35 to $9,960.