February 10, 2020 / 11:35 AM / 8 days ago

METALS-Zinc sinks to multi-year low on inventory jump and China fears

(Updates with official prices)

By Eric Onstad

LONDON, Feb 10 (Reuters) - Zinc prices lurched on Monday to their lowest since July 2016 after a surge in inventories and worries over demand in China as cases of the coronavirus grow in number.

Zinc stocks in warehouses certified by the London Metal Exchange (LME) hit their lowest in nearly three decades last week, but analysts said this was deceptive because a lot of metal was being held in other depots.

Annual contract negotiations had constrained metal flows but those have now been concluded, said Oliver Nugent, an analyst at Citigroup in London.

"Metal that was being held back before contract negotiations were finished is now coming on the market and, combining with weakness in Chinese import orders, that's putting pressure on LME prices," he said.

Three-month LME zinc slid to $2,123.50 a tonne, the lowest since July 8, 2016. It failed to trade in official open-outcry activity and was bid down 0.7% to $2,131.

With the coronavirus death toll rising to 908, the World Health Organization said the number of cases outside China could be "the tip of the iceberg".

Citibank has become more cautious about the impact of the virus on demand in China, the world top consumer of metals, Nugent said.

"If you tally up the provinces that so far show the largest amount of cases, the potential demand hit is really quite severe. We calculate that the seven worst provinces have about 40% of GDP, 40% of property new starts and 70% of air conditioner production."

Air conditioning units require large amounts of copper.

* ZINC STOCKS: LME zinc inventories MZNSTX-TOTAL shot up on Monday to 71,150 tonnes, the highest since August last year, bringing the gains over the past week to 43%.

* ZINC SPREAD: The discount of cash LME zinc to the three-month contract CMZN0-3 rose to $4.50 a tonne, its highest since last August and compared with a premium of $23.75 about three weeks ago. This indicates a rise in supplies of metal in the LME system.

* COPPER: LME copper rose 0.1% to trade at $5,668 a tonne in official rings, but Nugent expects further losses. Citibank forecasts that copper will touch a low of $5,300 during the first quarter before recovering later in the year.

* CHINA: Factory gate prices in China snapped six months of year-on-year declines in January, though prolonged business closures from the virus outbreak mean positive momentum is unlikely to persist.

* TIN: Indonesian state miner PT Timah plans to increase its 2020 refined tin output by 5%, a senior official said.

* PRICES: LME aluminium was bid 1.3% lower at $1,704 a tonne, nickel was bid up 1.5% at $12,960, lead shed 0.6% to trade at $1,806 and tin was bid up 1.1% to $16,350.

* For the top stories in metals and other news, click or (Reporting by Eric Onstad; Editing by Mark Potter and David Goodman)

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