Zinc prices averaged $1.38/lb in spot sales on the London Metal Exchange (LME) in the first week of October, an increase from the September average of $1.31 but nowhere near the nine-month average of $1.56. However, the current zinc price isn't as inflated as market analysts had expected even though stockpiles at LME-monitored warehouses have plunged 35% this year to 60,025 metric tons today, the lowest since early 1992.

"Zinc remains a mystery," says William Adams at BaseMetals.com. "It is the only metal to see consistent stock falls, but it just lacks the impetus to rally, so the market's interpretation of the situation (bearish) and our interpretation of the situation (bullish) differ." In fact, zinc prices on the LME have surged 75% on average this year—and reached a record $1.74/lb in May on expectations China's expanding economy will require more metals, while smelter output in China has been stymied by a lack of mined material.

Zinc prices in London, which now have fallen about 21% from their record, will likely post a new peak in the fourth quarter as stockpiles continue to dwindle, Adams says. In a nutshell, growth in zinc demand in the Western World has been relatively weak and actual sales have been quiet since the turndown in the construction and automotive industries have depressed demand for galvanized sheet. But, since Asia—and especially China—have shown a marked pickup in demand for zinc and its end-use products for motor vehicle and infrastructure.