LONDON: Zinc premiums in Europe are expected to soften into the year-end, as the region's debt crisis bites, but they are unlikely to drop sharply as they have support from financing deals and demand from consumers such as German galvanisers, traders said.
The premium for special high grade zinc in Rotterdam the price paid over the London Metal Exchange (LME) cash price was quoted at between $115 and $125 a tonne, down from $125-140 a tonne quoted previously.
A two-year debt crisis in Europe has raised fears of a recession in the region, undermining confidence and hitting industrial output, with investors reluctant to commit to new industry projects.
Although there was broad-based easing of demand across the region due to the debt crisis and a seasonal slowdown in activity, traders said demand from galvanisers in European countries such as Germany was holding up.
"German galvanisers are still doing OK. There is demand there, but it is also a bit lower than it has been over the summer and it's the time of year where construction work is slowing down," a physical zinc trader said.
"Everyone is a bit concerned about how it will be for next year. That's the big worry." Galvanising, in the construction and auto sector, accounts for around half of zinc demand.
Also limiting a fall in premiums was reduced availability of zinc in the market, as a lot of the metal is tied up in financing deals. "Even though the demand is there, it is difficult to find the material," a zinc producer said.
In a typical financing deal, a bank buys zinc from a producer, sells it forward at a profit and strikes a warehouse deal to store it cheaply for an extended period.
The global zinc market was in surplus by 275,000 tonnes in the first nine months of the year, the monthly bulletin from the Lisbon-based International Lead and Zinc Study Group (ILZSG) showed.
The figures showed global refined zinc use was 9.445 million tonnes in January to September, up from 9.332 million in the same period last year.
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