Metals keep surging as supply cuts fuel inflation worry

Base metals surged again as the global energy shortage continues to hit supplies, piling pressure on manufacturers and fueling concerns about persistently high inflation. 
 

Zinc spiked as much as 6.3% to a 14-year high after leading producer Glencore Plc said it was cutting production at three European plants because of surging power prices. Aluminum -- a particularly energy intensive metal -- has risen 62% this year. Copper extended gains beyond $10,000 a ton, after sharp drops in warehouse inventories pointed to an increasingly critical global supply squeeze. 

Friday’s gains come after the benchmark index of six base metals on the London Metal Exchange rose to an all-time peak on Thursday. Zinc is on course for a record 18% weekly gain, as European smelters joined Chinese plants in curtailing output due to a power crisis.  

Some producers are grappling with electricity outages, while others are cutting output as the surge in energy costs outpaces the rally in metals markets. The combination of high energy costs and this year’s broad advance in commodities is fanning concerns that inflation risks may linger for longer than previously expected, clouding the outlook for policy makers and threatening a recovery in the global economy.

Glencore’s zinc cuts followed an announcement earlier this week that Nyrstar -- another big producer -- would cut output at three European smelters by up to 50% due to rising power prices and costs associated with carbon emissions. Meanwhile, Matalco Inc., the largest U.S. producer of aluminum billet, is warning customers it may curtail output and ration deliveries as soon as next year amid a magnesium shortage. 

Copper is set for its biggest weekly gain since 2016 and is in a widening backwardation as global inventories shrink due to demand recovery and pandemic-driven disruptions. Rio Tinto Group said Friday that the start up of its Oyu Tolgoi project in Mongolia has been delayed by at least three months after Covid-related restrictions hampered progress. 

Copper rose 1.9% to to $10,174 on the LME. Nickel advanced 2.6%. Aluminum futures in Shanghai closed at a record.