Zinc sees some profit-taking, but 5-year peak within sight

Zinc prices up 70 percent since January lows

• Glencore zinc output up qtr/qtr in third quarter
• Massive zinc inventories a negative for prices
• Coming up: U.S. nonfarm payrolls Oct at 1230 GMT

(Recasts, adds comment, changes dateline from Melbourne)
Zinc slipped on Friday from five year highs as funds reversed bets on higher prices ahead of a key report on the health of the U.S. economy, but large deficits this year and next are expected to reinforce upward pressure.
Benchmark zinc CMZN3 was down one percent at $2,461 a tonne at 1027 GMT from an earlier high at $2,491.50. The metal used to galvanise steel hit $2,494 on Thursday, its highest since September 2011.
Lower supplies due to mines closures and firm demand are behind zinc's 70 percent rise since the January lows.
"Demand is expected to outstrip supply, producers have resisted ramping up output and there aren't any major zinc mines in the pipeline due to come on stream or being developed," said SP Angel analyst John Meyer.
Traders said funds were taking profits on long positions ahead of the U.S. non-farm payrolls data.
A strong reading could reinforce expectations of a Fed rate rise in December and boost the dollar, which when it rises makes dollar-priced commodities more expensive for non-U.S. firms.
Markets are also focused on the U.S. Presidential election next week, which could also have an influence on the dollar.
A third quarter report from Glencore on Thursday showed its zinc output down 30 percent year-on-year, reflecting the cuts that took place in October last year.
However, worrying for zinc bulls was the quarter-on-quarter rise of 13 percent to 282,700 tonnes.
Also a negative are large zinc inventories in warehouses monitored by exchanges and those not reported.
Zinc stocks in LME approved warehouses at 449,350 tonnes and according to Macquarie analysts inventories outside of exchanges stand at around 1.4 million tonnes; more than 13 percent of global consumption estimated at around 14.5 million tonnes.
"The refined market is running a deficit, however, but that deficit is largely being sated by the still large pile of unreported stocks the zinc market has accumulated in recent years," ICBC Standard Bank said in a note.
"This overhang of inventory needs to be eroded before prices can embark on the next, and likely powerful, leg of the bull market. That inventory depletion should accelerate in 2017 as we forecast another year of refined production being restrained by the growing concentrate shortage."
Copper CMCU3 was little changed at $4,957 from $4,958 at Thursday's close, aluminium CMAL3 was down 0.4 percent at $1,725, lead CMPB3 ceded 0.1 percent to $2,089, tin CMSN3 gained 0.6 percent to $21,240 and nickel CMNI3 fell 0.3 percent to $10,450.