Inventories of aluminum, copper, nickel, and zinc, four of the main contracts traded on the London Metal Exchange, have plunged by up to 70% over the past year, as record power prices in Europe hit production and the Ukraine war threatened output from Russia, the Financial Times reports.
Traders and big consumers have tapped warehouses for the material amid the booming demand as economies have recovered from pandemic lockdown restrictions and supply chain disruptions.
The trend was most evident in zinc, where prices rose 2.8% on April 12 to a 16-year high of almost $4,400 a tonne.
Since the start of April, available zinc stocks on the LME plunged 60,000 tonnes to a two-year low of just over 45,000 tonnes.
Analysts acknowledged that the soaring gas and power prices are behind the drawdown. They forced companies to curtail production at lossmaking zinc and aluminum smelters. Other reasons are production cuts and possible disruption of copper and nickel from Russia amid its war with Ukraine.
The LME had to suspend trading in nickel in March after a vicious short squeeze sent the price up by more than 250%.
The crisis could drive up the price of the LME as traders and producers seek to close short positions by repurchasing contracts.
An analyst saw the supply of refined copper to lag demand by 375,000 tonnes in 2022, double its previous estimate and large enough to deplete all visible stocks by December.
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Surging Power Prices Trigger Severe Metal Crisis: FT