Lead reached a 16-month high in London trading and zinc touched the highest level in almost a year before weightings for the metals in a benchmark commodity index change next week.
Lead’s weighting in the Standard & Poor’s GSCI gauge of 24 raw materials will increase to 0.4 percent from 0.38 percent as zinc slips to 0.51 percent from 0.52 percent. Zinc traders were betting on a price drop stemming from the change and were buying back contracts to cut losses, according to Mark Newson-Smith, head of sales at XConnect Trading Ltd. in London.
“Index reweightings are expected to see volume liquidation of zinc,” he said. “Therefore, the market has been running short.”
The lead market is set to move to a deficit starting in 2014 and prices are poised to climb in coming years because of supply difficulties, Credit Suisse Group AG said today in a report. While zinc is in abundant supply, much of the inventory tracked by the LME is tied into financing accords that prevent access to the metal, according to the bank.
“Some cite improved battery demand as a bullish factor” for lead, Newson-Smith said. The metal is used mostly in batteries, while zinc protects steel from corrosion.
Lead for delivery in three months fell 0.6 percent to $2,416 a metric ton by 12:58 p.m. on the LME after reaching $2,499, the highest price since Sept. 2, 2011. Zinc slid 0.6 percent to $2,127 a ton after touching $2,187.25, the highest level since Jan. 27. Both metals rose the most since September yesterday after U.S. lawmakers passed a bill to avoid the so- called fiscal cliff of tax increases and spending cuts.
The lead market’s surplus will shrink to 13,000 tons this year from 42,000 tons in 2012 as the metal’s average price gains 13 percent to $2,350 a ton, according to Barclays Plc. Demand will rise 5.9 percent, the second-biggest increase among LME metals, to 11.54 million tons, the bank said last month.
Zinc’s surplus will narrow to 150,000 tons this year from 195,000 tons in 2012 and average prices will advance 4 percent to $2,050 a ton, according to Barclays.
Open interest in lead futures, or the number of outstanding contracts, gained by 1,475 lots in the week ended Dec. 28 as prices rose 1.3 percent, according to LME figures. That would suggest new long positions, or bets on a higher market, according to Macquarie Group Ltd.
The next price target for the metal is $2,517 a ton, followed by the “ultimate goal” of $2,904, RBC Capital Markets Ltd. said in a report yesterday.
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