Andy Home: Zinc market ignores low LME stock as a false signal
Zinc stocks at the London Metal Exchange (LME), have fallen for seven consecutive months. The remaining zinc stocks would only cover one day of global consumption.
No one has told the market that zinc is in real danger of being scarce.
Zinc underperformed all the other base metals on the LME this year, and it is the only one that still trades below its start-of-year price by 4%.
Time-spreads are tightening but remain at a small contango. This suggests that the LME's near-depletion of inventory isn't a true reflection of the real world.
This wouldn't mark the first time that LME zinc stock has been manipulated to fool the unwary. Analysts agree that the market is moving into a significant surplus of supply, and it's only a matter time before exchange inventories recover.
Holders of short positions can only hope some of this surplus will appear in the exchange warehouses as soon as possible.
UNRELIABLE SIGNS
The LME registered zinc inventory is at a 2-year low, 78,475 tons. Available stocks are even lower, at 45,700 tonnes.
The majority of the remaining zinc and lead is located in Singapore. This exchange delivery point has been the main hub for arrivals of both metals since 2023. LME zinc stock in Singapore rose from 58,000 to over 200,000 tons during the second half November of that year, as the surplus metal was lured out of the darkness by lucrative warehouse rentals.
Metal has been pumped in and out as traders have played the LME arbitrage game. Zinc stocks ended 2024 in Singapore up a modest net of 35,550 tonnes on the previous year. However, 691,500 were delivered into and out of LME sheds at the port.
Optics were bullish or bearish based on the stock rotation cycles, reducing the usefulness of LME warehouse inventories as a signal.
CHAINS SUPPLY GAPS
In April, almost 90,000 tonnes of zinc were warranted within two days.
Since then, the movement has been mostly one-way. The inventory has fallen by 144 250 tons since January 1.
There has also been no increase in the amount of metal stored in warehouses registered with LME, as there was last year when warehouse operators were moving metal between themselves.
LME's off-warrant stock totals just 16,472 tonnes, with 4,842 of those stored in Singapore.
Singapore's exports of zinc have seen a notable increase in the first six months of this year. The 153,000 tonnes of outbound metal already match last year's total for the entire 12-month period. The island does not have any zinc smelters, so this is LME material on the move.
Inbound shipments have also slowed down to 27,000 tons, from 82,000 tons, in the second half 2024.
Singapore's exports are flowing to many Asian countries. This suggests that LME stocks were depleted to fill the supply-chain gap left by smelter interruptions. Toho Zinc closed permanently its Annaka smelter, and Youngpoong Seokpo in South Korea had to take a break for 58 days after an illegal discharge of water. Nyrstar's Hobart smelter has been reduced by 25% in output since March, and Glencore closed a part of the Portovesme complex.
CHINA RAMPS Up
As supplies of mined concentrator improve, Chinese producers ramp up their production.
According to Shanghai Metal Market (local data provider), China's refined output of zinc increased by 4% year-over year in the period January-July. The company predicts that the rate for the entire year will increase to 7% in august.
The treatment charges for imported raw materials have recovered to $82.00 a ton from negative territory by the end of 2024 as the recovery in global mining production has spread down the processing chain.
China's imports of Zinc Concentrates jumped 48% year-over-year in the period January-June thanks to increased flows from the Democratic Republic of Congo (DRC) and Russia where the new Kipushi Mine and Ozernoye Mine are ramping up.
However, so far the excess zinc has been kept in China. In the first half 2025, exports of refined metals amounted to only 12,700 tons.
BETTING ON SURPLUS
London's zinc market is remarkably unconcerned about the loss of exchange stocks.
The LME benchmark spread from cash to three-months
The exchange lending guidance could be a factor in the spreads being relaxed. LME reports show two significant long positions at the cash date, which are equivalent to 90% of the stocks currently available.
The wide divergence in the spread between stock and spread signals indicates that there is no panic, because no one believes the physical supply chain to be so tight.
According to the International Lead and Zinc Study Group, the zinc demand has been flatlining in recent months due to weak building activity almost everywhere. The global market also registered a surplus of nearly 90,000 tons between January and May.
It is important to know how much of this calculated surplus can be delivered via the LME. How quickly, and perhaps more importantly, given the current tensions in the London Zinc market, can the zinc be delivered to the LME?
These are the opinions of the columnist, an author for.
(source: Reuters)
