LONDON - Prices of zinc in London hit their highest in more than four years on Friday as the accumulation of stocks in China, the world's biggest metals consumer, drove concerns about shortages elsewhere, leading to speculative buying.

Benchmark zinc on the London Metal Exchange CMZN3 hit $3,823.85 a metric ton on Friday, its strongest since June 2022.

Zinc, mainly used to galvanise steel, has gained 22% on the LME so far this year, outperforming all major LME metals except tin.

"Concerns over physical metal shortness have supported zinc’s price, with LME stocks relatively tight," said analyst Alice Fox at Macquarie, adding that zinc metal was plentiful in China.

Zinc inventories in warehouses registered by the LME have slid 25% over the last two months to 93,125 tons while stocks in storage facilities linked to the Shanghai Futures Exchange have more than doubled this year to 155,954 tons.

The regional disparity increased this week when 9 175 tons were delivered to LME warehouses in Hong Kong, Fox noted.

The price gains have been amplified by speculators who repeatedly expected more output from mines and took bearish positions, but then had to buy them back, said Alastair Munro, senior base metals strategist at broker Marex.

"Zinc is still confounding the bears," he said.

"Too many keep trying to pick tops amid the expectation of increased supply, which is then slower to materialise forcing them to stop out."

TREATMENT CHARGES REFLECT LACK OF CONCENTRATE
The lack of concentrate - which is partially processed ore from mines - to feed smelters has shown up in treatment charges for zinc, which have sunk into record negative levels.

Treatment charges are fees usually paid by miners to smelters when they sell concentrate to be refined into metal, but when supplies are extremely tight the situation flips and smelters are forced to pay to access supplies to process.

Zinc spot concentrate treatment charges, cif China, were last quoted at minus $110 a ton, compared to plus $100 in November last year, according to data provider Fastmarkets.

The lack of refined metal outside China has also created a large backwardation or premium on the LME, where nearby futures trade higher than the forward.

The premium of LME cash zinc over the three-month contract CMZN0-3 surged to $132 a ton on Friday, up from zero in early July and the highest since last December.

"There is a risk of a prolonged squeeze with backwardation persisting and roll costs becoming more expensive," Fox said.