Zinc stocks slide as shortages in Europe persist
16/06/2022 12:04
* Lower zinc prices may squeeze producer margins further
-AMT
* Premium for cash over 3-month zinc contract at 1-month
high
By Pratima Desai
LONDON, June 16 (Reuters) - Zinc stocks in London Metal
Exchange (LME) approved warehouses are at their lowest in more
than two years due to shortages in Europe where record-high
power prices have led to production cuts of the metal used to
galvanise steel.
European power prices have been rising since late 2020, but
upward momentum picked up this year due to worries about gas
supplies from Russia after it invaded Ukraine.
Reinforcing these concerns was a cut in Russian gas
deliveries on the Nord Stream 1 pipeline into Germany on
Wednesday. urn:newsml:reuters.com:*:nL8N2Y249K
"European zinc producers face more pain after reduced gas
flows from Russia through the Nord Stream pipeline triggered a
fresh surge in regional natural gas prices this week," said Tom
Mulqueen, analyst at Amalgamated Metal Trading (AMT).
"Higher energy prices and June's pullback in zinc prices may
squeeze margins and further constrain regional zinc smelter
output. However, a sustained fresh spike in European energy
prices would also exacerbate regional inflationary pressures,
adding to fears of a regional demand slowdown."
Stocks in LME warehouses MZNSTX-TOTAL at 79,575 tonnes are
at their lowest since April 2020, while cancelled warrants --
metal earmarked for delivery -- at 26% indicate more zinc is due
to be delivered out.
This combined with large holdings of zinc warrants and cash
contracts has again fuelled worries about supplies on the LME
market and created a premium for the cash over the three-month
contract CMZN3 0#LME-WHL 0#LME-WHC .
The premium of around $59 a tonne is at its highest since
April 28 and compares with $1 a tonne a month ago.
Benchmark zinc CMZN3 at around $3,600 a tonne is down more
than 25% since hitting a record high of $4,896 a tonne in March.
Before producers such as Glencore GLEN.L and Nyrstar
NYR.BR cut output, Europe typically accounted for 15% of
global zinc supplies estimated at 14 million tonnes this year.
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(Reporting by Pratima Desai; editing by Aditya Soni)
((pratima.desai@thomsonreuters.com; +44 207 513 5681;))