Tight LME zinc inventories could be topped up from China
By Eric Onstad
LONDON (Reuters) – Available zinc inventories in registered warehouses of the London Metal Exchange (LME) more than halved this week, but supplies could be replenished from China, where stocks have been rising, analysts said.
LME zinc inventories have been eroding this year, evidence of supply problems in Europe and the United States as smelters reduce output, a contrast to the more plentiful picture in China.
Zinc inventories Erode on LME, climb in Shanghai https://fingfx.thomsonreuters.com/gfx/mkt/myvmnrazjpr/Zinc%20Inventories%20Erode%20on%20LME%20climb%20in%20Shanghai.png
The situation became more serious this week after owners of 35,000 tonnes of zinc inventories in LME warehouses gave notice they want to withdraw the material, slashing available stocks by 56% to 26,325 tonnes.
“This clearly led to concerns about supply and renewed fears that the zinc market could find itself squeezed on account of the low stocks,” Commerzbank analyst Daniel Briesemann said in a note.
A scramble to access available material sent the spread between LME cash zinc and the three month contract soaring to a three-year high of $148.60 a tonne on Wednesday from only $14.30 last week.
Zinc premiums shoot up in Europe, United States https://fingfx.thomsonreuters.com/gfx/mkt/zdvxoexmgpx/Zinc%20Premiums%20Shoot%20Up%20in%20Europe%20United%20States.png
The shortages are partly due to zinc smelter cutbacks in Europe by producers Trafigura, Glencore and others in the face of power prices that hit three-month highs on Tuesday.
That has forced up the premium buyers pay over the LME price for physical metal in Europe and the United States, a big contrast to declining premiums in China.
Zinc Spread Soars on Supply Worries https://fingfx.thomsonreuters.com/gfx/mkt/akvezlobbpr/Zinc%20Spread%20Soars%20on%20Supply%20Worries.png
In China, weaker demand due to an economic slowdown and COVID-19 lockdowns has lead to rising inventories, which may help rebalance the global picture.
Zinc inventories in Shanghai Futures Exchange warehouses have more than doubled this year to 159,672 tonnes.
“We hear there is stock coming from onshore (China) to the LME (warehouses),” Al Munro at broker Marex said in a note.
Another analyst, who declined to be named, said such a move would make sense because LME prices are trading at a premium to Shanghai prices and arbitrage deals could be profitable to ship from China to LME.
The physical tight conditions have supported benchmark LME zinc prices, which are the best performers on the exchange over the past three months.
All industrial metals prices have seen losses due to a slowdown in top metals consumer China and fears of a global recession eroding demand, but zinc has declined less than others.
(Reporting by Eric Onstad; Editing by Mark Potter)