5 days ago
Zinc Rally Eases as LME Spreads Signal Tighter Supply
Zinc prices went down after recently reaching a high not seen in more than four years.
However, signs suggest that nearby supplies are becoming harder to find.
Zinc available immediately costs almost $200 more per ton than zinc delivered later.
This difference is called a spread, and it can show that buyers are worried about shortages.
Another short-term trading spread also rose sharply on the London Metal Exchange.
There is less zinc ore available, making it cheaper for miners to pay smelters to process it.
If these low processing fees continue, some smelters might reduce production.
A zinc plant in Spain briefly used less electricity, but this is not expected to significantly reduce its output.
Zinc fell 0.8% to $3,861 a ton after reaching its highest level in more than four years.
Spot zinc traded nearly $200 a ton above three-month futures, the widest spread since December.
The LME Tom-next spread rose to about $13 a ton, signaling a short-term supply crunch.
Ore shortages pushed zinc treatment charges as low as minus $110 a ton, increasing pressure on smelters.
Glencore’s Asturiana de Zinc smelter in Spain briefly reduced power use, but the output impact is not expected to be material.
- Who
- Zinc traders, miners and smelters, with Glencore’s Asturiana de Zinc plant also involved.
- What
- Zinc prices eased while futures spreads widened, indicating tighter near-term supply on the London Metal Exchange.
- Where
- The main trading activity was on the London Metal Exchange, with supply concerns also involving a smelter in northern Spain.
- When
- The developments were reported on Wednesday and Thursday; zinc fell on Thursday as of 11:40 a.m. local time.
- Why
- Ore shortages, thin physical availability and very low treatment charges are increasing concerns about zinc supply.
Tight-Supply Signals
Limited Immediate Disruption
Near-term zinc availability
Tight-Supply Signals
Widening spot premiums, a higher Tom-next spread and thin LME liquidity indicate a short-term supply squeeze.
Limited Immediate Disruption
The reported power reductions at Asturiana de Zinc have been limited, and their impact on output is not expected to be material.
Smelter production risk
Tight-Supply Signals
Negative treatment charges and ore shortages could increase the risk of production cuts and worsen the supply squeeze.
Limited Immediate Disruption
Smelters can offset some losses from negative treatment charges by selling by-products, which may reduce the immediate effect on production.
Key facts
- Zinc price
- $3,861 a ton, down 0.8% as of 11:40 a.m. local time on the LME
- Spot-three-month spread
- Nearly $200 a ton on Wednesday, the widest since December; above $190 on Thursday
- Tom-next spread
- About $13 a ton on Thursday, the highest backwardation since March
- Treatment charges
- As low as minus $110 a ton, according to Fastmarkets
- Supply condition
- Available physical liquidity on the LME was described as extremely thin
- Spanish smelter
- Asturiana de Zinc reduced power consumption for a few hours on a limited number of days
- Expected production impact
- The Spanish smelter’s power reductions are not expected to materially affect output
Quotes
Guangzhou Future Co.
A commodities research company that issued a note on the zinc market
“Available physical liquidity is at extremely thin levels on the LME. Before mine output recovers materially, smelting costs will provide a strong floor for zinc prices.”
livemint.com
Sources
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