NEW YORK — Limited spot activity kept zinc premiums steady this week, although some market participants said a perceived supply tightness in special-high-grade (SHG) zinc could push premiums up.
AMM’s spot SHG premiums are between 7.5 and 8.5 cents per pound, although several participants maintain that getting zinc at a premium below 8 cents is difficult.
"I would say SHG is a strong 8 cents now. It’s tight. That’s why I emphasize the word ‘strong,’" a consumer source told AMM.
The tightness is not driven by dramatically increased consumption, though, as demand from die casters remains weak.
"We say it’s tight but we laugh, too. On the zinc die casting side, it’s dead. There’s not much going on," the consumer source said. "Maybe galvanizers are busy. But I’d be blown away to hear there’s a physical shortage."
The supply tightness is more likely due to the amount of zinc tied up in London Metal Exchange-listed warehouses, sources said.
"It’s tight because of the warehouses and the financing deals. It takes forever to get the metal out. It’s not really tight, but it seems like it is," a producer source said.
Global LME warehouses held 1.2 million tonnes of zinc on Jan. 31, with queues to get material out of stores in New Orleans stretching out to 2014. New Orleans warehouses held more than 786,000 tonnes of zinc on Jan. 31, and while LME data shows that some 2,500 tonnes of zinc was delivered out every day this week, traders said it is going to consumers.
Canceled warrants at New Orleans stood at 447,500 tones Jan. 29, according to the latest LME data.
"(The cancellations) certainly do not mean better zinc demand since it will be next year before you can get your hands on it," a trader said. "This is a blocking maneuver—keep anyone who really needs zinc from getting it quickly." The warehouses have an incentive to store the material as annual rents in New Orleans are $170 per tonne, he said.
A second trader said that while some zinc being delivered out is simply being moved to other warehouses, he wouldn’t be surprised if consumers received some zinc as well. "I imagine some material will show up in other warehouses, (but) I imagine a good amount will go to end users if we believe statistics showing a market moving into a deficit. Time will tell."
Free-market zinc alloy premiums also were steady this week, with the benchmark No. 3 and No. 7 alloys at 18 to 20 cents per pound and the No. 5 alloy at 20 to 22 cents per pound. No. 8 alloy continued to trade at 21 to 23 cents per pound, and No. 12 held at 24 to 26 cents per pound.