Shanghai zinc trades like a steel derivative -
Zinc soars on supply squeeze even as stealth stocks build
(The opinions expressed here are those of the author, a columnist for Reuters)
LONDON (Reuters) - Zinc has emerged as the unlikely star performer in the London Metal Exchange (LME) base metals suite.
LME three-month zinc CMZN3 hit a fresh 18-month high of $2,793 per tonne on Friday and is even outperforming high-flying copper.
The trigger for the latest leap higher was news that the Gamsberg mine in South Africa is shuttered until further notice while a search continues for two miners missing after an accident.
This is another unexpected hit to a raw materials supply chain already wrecked by COVID-19 mine lockdowns.
Demand, meanwhile, is running strong in China, where zinc has been sucked into steel's bull orbit.
The same cannot be said of the rest of the world but surplus zinc is being absorbed by the supply chain as "stealth stocks", accumulating away from the market's view in the form of rising LME shadow inventory and producer stocks.
That is helping the bullish optics.
Graphic: Zinc TCs sink -
MINE SQUEEZE
The temporary closure of Gamsberg, which came on line in late 2018 and was in the process of ramping up to first-stage capacity of 250,000 tonnes per year, has left another hole in the mined concentrates market.
Zinc and sister metal lead have been hard hit this year by national quarantines in key supplier countries such as Peru, Bolivia and Mexico.
A market that was expected to register a significant excess of mine production this year is now running short.
The International Lead and Zinc Study Group (ILZSG) was anticipating a 4.7% surge in mined output this year when it met in October 2019. Fast forward to October 2020 and the outlook is now for global production to actually fall by 4.4%.
The tensions in the raw materials segment of the zinc supply chain are clear to see.
Smelter treatment charges in China have tumbled to two-year lows under $100 per tonne as operators compete for concentrates. That's a long, long way below this year's benchmark terms of $299.75.
It's maybe no coincidence that one of China's largest players, Minmetals, is now calling for the creation of a Chinese zinc smelters group - along the lines of an existing collective for copper - to negotiate with miners on concentrate supply and pricing.
Smelter margins are being squeezed and concentrates availability is unlikely to improve dramatically before smelters and miners lock horns on next year's treatment charge benchmark.
See the whole story on Reuters here: https://uk.reuters.com/article/us-metals-zinc-ahome-column-idUKKBN2801RS
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