LONDON: Zinc lost ground on Thursday from a three-year peak two days before after inventories rose, highlighting an overhang of supplies that need to be eroded before expected shortages kick in.
Benchmark zinc on the London Metal Exchange (LME) slipped 0.9 percent to $2,359 a tonne by 1009 GMT after hitting successive peaks of $2,416 on Monday and again on Tuesday, the strongest since August 2011.
Zinc prices have climbed 15 percent this year as funds have scrambled to buy based on forecasts of future shortages after the closure of major mines, but many analysts say prices are overheated since tight markets have not yet emerged.
"It does seem to indicate that people are asking questions about whether zinc has any further upside. We have been saying that the price has escaped the fundamentals. It's overextended and it's got a correction due," analyst Vivienne Lloyd at Macquarie in London said.
"With stocks going in to New Orleans today, that's going to diminish appetite for the upside as well."
LME zinc stocks rose 7,375 tonnes on Thursday to 655,750 tonnes after dropping by 30 percent so far this year. It was unclear yet whether this was a one-off increase or marked a halt of the declining stocks trend, Lloyd added.
Other LME metals were either flat or in the red, weighed down by a slightly stronger dollar and concerns about the Chinese economy.
The International Monetary Fund said that China should lower its growth targets for next year as part of a push towards safer and more sustainable growth. It also flagged the country's property slowdown as a cause for concern.
The world's second-largest economy accounts for around 40 percent of world refined copper demand, and China's construction sector for a large portion of its copper consumption.
"The (positive) Chinese economy story might carry into the next quarter. But the game is structural deceleration, so bad news is waiting to come around again," analyst Dominic Schnider of UBS Wealth Management in Singapore said.
The dollar hovered just below a 10-month high against a basket of currencies after the U.S. Federal Reserve said on Wednesday it was in no rush to raise interest rates.
A stronger dollar makes dollar-priced commodities more expensive to buyers outside the United States.
LME copper was unchanged at $7,125 a tonne after gaining around half a percent in the previous session. Prices are within reach of $7,212, the July 8 peak that was the loftiest since February.
LME aluminium was also barely changed, rising 0.1 percent to $2,023 a tonne after gaining 2 percent on Wednesday.
Aluminium's gains came as exchange stocks looked to be locked up for a while.
The London Metal Exchange's attempts to cut backlogs at warehouses with new rules are likely to be delayed again for several months after judges declined to make an immediate ruling on a case holding up the reforms.
The news also helped propel cash prices to the highest against benchmark prices since December 2012.
