The zinc market is making a U-turn.
The market shot up over the past two years, but is now in retreat. Prices have tumbled 8 percent since a peak in mid-February. On Monday, the losses deepened after data from the London Metal Exchange showed the biggest increase in inventories in almost three decades.
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Here's why the delivery matters for the global zinc market:
Declining inventories have been a big factor driving up prices. Zinc jumped more than 60 percent over the past five years as LME stockpiles shrunk by more than 80 percent. The main question on traders' minds is now whether stockpiles will rise further.
Zinc prices fell 1.8 percent to settle at $3,296 a metric ton as of 5:51 p.m. in London.
Funds have already been paring bullish positions in zinc. In the immediate term, prices should find some support at around $3,300 a ton, analysts at Marex Spectron said in an emailed note.
The zinc market has been extremely tight in recent months, meaning that it's difficult for suppliers to access metal, and has frequently been in backwardation, a condition when spot contracts trade above futures.
There are signs the market may be finally loosening. Last week, cash contracts traded at a discount to March futures for the first time this year. The spread weakened further following the delivery on Monday.
Global inventories remain at depressed levels and in Asia and Europe, LME warehouses are almost out of metal. New Orleans now holds more than 99 percent of all zinc in the exchange's warehouse network. But high shipping costs mean it's unlikely for that metal to reach manufacturing centers outside the U.S.