Metals Extend Scorching Rally With Zinc Topping $4,000

(Bloomberg) -- Zinc reached its highest since 2007 and aluminum surged to a fresh record, as industrial metals extended a rally fueled by trade turmoil and the increasing economic isolation of Russia.

Prices for zinc, used to coat and protect steel, rose as much as 4.3% on the London Metal Exchange on Thursday to reach $4,028 a ton, while nickel surged more than 8% and copper closed in on an all-time high.

Commodities markets from metals to oil and gas have been upended by the war in Ukraine as big corporates withdraw from Russia, lenders pull back from financing deals and the threat of new sanctions deters buyers. Bloomberg's gauge of commodity prices reached an all-time high on Wednesday.

Beyond the risk to Russia's metals exports, traders are also weighing the impact that surging energy prices will have on zinc and aluminum smelters in Europe, exacerbating acute supply constraints in the region.

On top of the surging prices in futures markets, the premiums that consumers pay to obtain metal in Europe have also jumped, exacerbating the inflationary strain on manufacturers.

“Zinc has been slower to price in the supply risk, and to an extent it's true across the board,” Eoin Dinsmore, head of base metals demand and markets research at CRU Group, said by phone from London. “Metals are still just waking up to the problems this could cause.”

It's getting increasingly difficult to transport commodities like metals as almost half of the world's container ships will no longer go to and from Russia. Soaring global fuel prices are also a headache for the metals market as production costs increase and pile pressure on smelters.

Alcoa Corp., the largest U.S. aluminum producer, said it will stop selling products to Russian companies and halt buying of raw materials from the country.

The turmoil comes at a time when global metals stockpiles are already low and falling further. Freely-available nickel stockpiles fell to the lowest since December 2019, while zinc holdings haven't been as low since July 2020. Cash nickel contracts traded at the biggest premium to three-month futures since 2007 on the London Metal Exchange, in a condition known as backwardation that signals a worsening squeeze on spot supply.

Zinc closed at $3,920.50 a ton at 5:51 p.m. in London. Aluminum surged as much as 5.2%, and nickel gained 3.9%. All other main LME metals advanced.

With assistance from Bloomberg