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Metal prices rise after gas crisis which reduced production

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Metal prices hit multi-year highs after smelters, faced with soaring energy bills and pressure to cut their carbon emissions, cut production.

Zinc for three-month delivery on the London Metal Exchange jumped 3.7% Thursday to $ 3,528.50 per metric tonne, its highest level in more than three years after Nyrstar,

NYR 4.45%

a major producer, said he was cutting production in half at three European factories.

Aluminum prices on the stock market jumped 1.6% to $ 3,117 per tonne, their highest level since 2008. China has cut back its production of aluminum, a very energy-intensive process, as it s ‘strives to reduce its carbon emissions and relieve pressure on its electricity grid.

Belgian company Nyrstar said on Wednesday that rising energy bills and the additional cost of EU taxes on carbon emissions meant that it was “no longer economically feasible” to operate the three plants. in the Netherlands, Belgium and France at full capacity.

Other metals also rose on Thursday, supported by bets that supply will be reduced in the future. Most actively traded copper futures rose 2.6% to $ 4.63 a pound in New York, taking their lead for the week above 8% and climbing back to their all-time high above $ 4.75 from the start of the year.

Metal production is the latest segment of the global economy to feel the effects of soaring gas prices, which are pushing up energy bills for manufacturers.

Natural gas inventories have declined as concerns over a cold winter in the northern hemisphere spark stiff competition among buyers from Europe, Asia and North America who rush to replenish stocks.

European countries have been hit particularly hard due to Russia’s tight supply and cuts in their own gas production in an attempt to cut carbon emissions.

For metals, the gas crisis means less production at a time when demand is booming. Demand for zinc, which is used in steelmaking, is strong as economies around the world reopen coronavirus-induced shutdowns. Demand for aluminum for food packaging, cars and construction also rebounded.

Still, some analysts fear demand from factories in China, one of the biggest consumers of metals, will disappoint, limiting price gains.

Earlier this week, ahead of the announcement of Nyrstar’s cuts, the International Lead and Zinc Study Group cut its forecast for surplus zinc this year from 136,000 tonnes, to 217,000 tonnes, to reflect stronger demand than planned. Next year, the group expects a more modest surplus of 44,000 tonnes.

Nyrstar’s reductions could mean between 40,000 and 50,000 tonnes of lost zinc production per month, according to ING estimates. Energy-related production slowdowns in China mean that zinc production there is also likely to be below expectations, the bank said.

Daniel Briesemann, metals analyst at Commerzbank, wrote in a note to customers that any sustained drop in production would leave the zinc market “seriously under-supplied”.

Meanwhile, China’s aluminum production has been slashed by 10% this year, or about three million tonnes, estimates Robin Bhar, an independent metals consultant.

“We are seeing extraordinarily strong demand as you squeeze the supply of aluminum and other metals… There is a big dislocation between supply and demand,” he said.

A weaker dollar also supported dollar-denominated metals this week, making them cheaper for foreign buyers.

contributed to this article.

Write to Will Horner at William.Horner@wsj.com

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