According to Bloomberg statistics, total available inventories on the London Metal Exchange (LME) for six main contracts - copper, aluminum, zinc, lead, tin and nickel - fell to just 500,000 tons, plummeting to the lowest level on record, and the market reacted to the surge in prices. Worried about detonating a short squeeze in the spot market. The head of commodity strategy at ING directly named the risk of a short squeeze in the LME zinc market rising.
The Australian Financial Review reported that Bloomberg data showed that total available stocks of LME six major contracts - copper, aluminum, zinc, lead, tin and nickel - fell from 6 million metric tons in 2010 to 500,000 tons now. The lowest water level ever recorded.
Ausbil Natural Resources Fund portfolio manager James Stewart said LME base metal inventories were falling and were in short supply. When inventories fall to such levels, it means prices are likely to move higher, increasing the likelihood of tight supplies.
Analysts pointed to zinc as particularly vulnerable, with inventories in LME warehouses falling 40% since December to 127,675 tons, sending prices surging this week to their highest level since 2006.
Markets were also under pressure after reports that commodities trader Trafigura and others were withdrawing large quantities of zinc from LME warehouses to make up for a global supply shortage. Warren Patterson, head of commodity strategy at ING, named the risk of a short squeeze in the LME zinc market rising.
The report analyzed that the surge in zinc prices stemmed from high electricity prices forcing smelters to cut production, and zinc inventories fell by more than 60% in less than three weeks. Strategists warned that a fresh surge in electricity prices could put more pressure on zinc supplies.
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