January 4, 2018 / 11:01 AM / 2 years ago

METALS-Zinc hits more than 10-year high on deficit worries

* Zinc reaches highest since August 2007 at $3,364/T

* GRAPHIC-2017 asset returns: tmsnrt.rs/2jvdmXl

* LME/ShFE arb: bit.ly/2wZSAEz (Updates with closing prices)

By Jan Harvey

LONDON, Jan 4 (Reuters) - Zinc hit its highest in more than 10 years on Thursday on concerns over a market deficit, while copper rose after upbeat Chinese data supported growth expectations in the world’s biggest metals consumer.

Zinc stocks held in London Metal Exchange warehouses MZN-STOCKS fell 250 tonnes to their lowest since late 2008, data showed on Thursday, down by a third from their October peak.

“The market is definitely tight. We saw a dramatic fall in stocks last year,” said Capital Economics analyst Caroline Bain. “Mine supply fell off particularly in the preceding years, and we started to see that in the refined market, and the fall in refined stocks, last year.”

At this point high prices are justified, she said, but added that mine supply is already showing signs of picking up.

“Over the course of this year, we expect the market to be loosening,” she said.

Industrial metals benefited more broadly from optimism over the outlook for China, analysts said. A private sector survey on Thursday showed Chinese service sector activity expanded at its fastest pace in more than three years in December.

* ZINC PRICES: Three-month zinc on the London Metal Exchange closed at $3,362 a tonne, up 1.1 percent, having earlier touched its highest since August 2007 at $3,364.

* POSITIONING: Large holdings of LME zinc warrants <0#LME-WHL> have stoked concerns about availability, holding the premium for cash over the three-month contract CMZN0-3 at $19.50 a tonne, against a $10.25 discount on Dec. 20.

* ZINC OUTLOOK: Zinc prices are likely to keep rising over the next six to nine months, Goldman Sachs said in its outlook for 2018, based on refined stocks drawing down, a larger than consensus deficit for 2017 and Chinese zinc mine supply being unlikely to respond to higher prices during the first half.

* COPPER PRICES: Three-month copper on the London Metal Exchange was untraded at the close but was last bid at $7,188 a tonne, up 0.6 percent.

* FINANCIAL MARKETS: The dollar edged lower on Thursday, while strong data from the world’s biggest economies boosted equities, sending stock index records tumbling and oil prices to their highest since mid-2015.

* LEAD PRICES: LME three-month lead finished 0.3 percent up at $2,587 a tonne.

* DEFICIT: Wood Mackenzie forecasts that the lead market will be in deficit to the tune of 115,000 tonnes this year and 56,000 tonnes in 2019, after a 119,000 tonne shortfall last year.

* PRICES: LME aluminium was up 1 percent at $2,250 a tonne by the close, nickel advanced 2 percent to $12,650 and tin finished 0.3 percent down at $19,850.

Additional reporting by James Regan in Sydney; Editing by Edmund Blair and David Goodman

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