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Zinc hit a three-year high and aluminium touched a 16-month peak on Tuesday as investors sought more exposure to commodities due to improved fundamentals, and encouraged by falling stocks and firm equity markets in Asia.
London Metal Exchange stocks of zinc fell by 400 tonnes to 656,275 tonnes, their lowest in three and a half years, while aluminium stocks fell 9,075 tonnes to 4.938 million tonnes, their lowest in nearly two years. Investors are slowly being drawn back into commodities, attracted by stronger global economic growth and more volatility within some sectors, typified by current investment flows out of grains into industrial metals.
"There's a certain amount of relative value going on where investors prefer one metal over another," said Macquarie analyst Vivian Lloyd.
She added, however: "In our view its premature, the real tightness (in zinc) will hit next year, but (right now) its a market half the size of copper with four times as much stock." Three-month zinc on the London Metal Exchange rose to $2,370, a high since August 2011, before settling at $2,361 a tonne by 1053 GMT. Prices are up almost 15 per cent this year.
Data on Monday showed China's June zinc imports rose 123.55 per cent year on year to 68,475 tonnes, bringing gains for the year to 38.14 per cent.
Zinc prospects have been driven by a paucity of huge new mine projects just as behemoths such as Century in Australia dry up. Analysts have turned more bullish on zinc, raising their 2014 price forecasts to $2,115.70 a tonne in a poll this week, up three per cent from a previous poll.
"The combination of stronger growth but less stimulatory monetary policy in the US is more likely to be a net positive for commodity prices - especially industrial metals - than for those of other assets ... provided there are no further shocks from China," said Capital Economics in a note.
