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SHG premiums will trend up: zinc traders

Keywords: Tags  zinc, International Zinc Association conference, Eastern Alloys, Ryan Winter, Macquarie Capital, Duncan Hobbs, LME, warehouses SHG premiums


CANCUN, Mexico — Some producers, die casters, galvanizers and traders who gathered at the International Zinc Association conference in Cancun this week remain hopeful of an uptick in special-high-grade zinc premiums.

AMM’s spot premiums for SHG zinc are between 7.5 and 8.5 cents per pounds. But in Cancun, traders and producers insisted that the low of 7.5 cents will soon be a thing of the past, as queues at London Metal Exchange-listed warehouses continue to cause a perceived tightness in U.S. zinc supply.

"I’d say 8 cents is the low end of the range. It can go up to 8.5 depending on where the customer is, if it’s a higher freight and if they’re looking for bigger tonnages," one trader told AMM. "The supply-side tightness is driving it."

LME-listed warehouses held 1.2 million tonnes of zinc globally Feb. 28. Warehouses in New Orleans—with the largest zinc holdings in the United States—held 762,575 tonnes, with queues for delivery extending out to next summer.

Macquarie Capital Securities Ltd. analyst Duncan Hobbs said all evidence points to zinc premiums reaching record highs in the next few months, which he estimated will head toward 10 percent of the overall price in some locations ( amm.com, Feb. 27). At current prices, that represents a premium above $200 per tonne (9 cents per pound).

Three-month zinc ended the LME’s official session at $2,080.50 per tonne Feb. 28, down 1.4 percent from $2,109 per tonne one week earlier.

The warehouses have become a market of first resort rather than last resort for producers, leaving very little material for consumers, Hobbs told conference attendees.

While the warehousing trends, in theory, should push premiums up, consumers said demand is still too weak to justify an increase and maintain that they can still purchase zinc at a premium of 7.5 cents per pound.

"They’re just trying to talk it up. I have no problem getting 7.5 (cents)," one die caster told AMM.

"Demand isn’t there. Premiums are between 7.5 and 8.5 (cents)," a second trader agreed.

The outlook for zinc consumption is mixed, market sources said. While the automotive market continues to be robust and the U.S. construction market is showing signs of life for the first time in four years, sources said it hasn’t translated into much business thus far this year.

"Demand is OK, but it’s not great," one producer said.

Zinc demand growth depends largely on China, sources agreed.

"That’s what we don’t know. How will China look? Long term, it’s strong, but short term, we don’t know," a zinc oxide producer said.

The future of the domestic die casting industry was also discussed, with one consumer saying that the zinc and die casting market has been "a dying industry for years" as jobs are shipped to China.

But this trend is reversing, Ryan Winter, manager of customer engineered solutions at Maybrook, N.Y.-based Eastern Alloys Inc., said.

North American die casters are regaining some market share, he said, citing changes in the exchange rate between the dollar and the yuan, higher production costs in China and a recovery in the domestic market after the 2008-09 financial crisis ( amm.com, Feb. 26).


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