LONDON: London Metal Exchange (LME) zinc stocks have more than doubled to 145,975 metric tons over the last month and are now at their highest level since February 2022.
What started in July as a trickle of metal into the market of last resort has turned into an August flood with 76,425 metric tons placed on LME warrant since the start of last week.
The sudden appearance of so much zinc shouldn’t come as a big surprise since the market has for some time been signalling weaker dynamics for the galvanising metal.
LME three-month zinc hit a near three-year low of $2,215 per metric ton in May. Currently trading around $2,280, zinc is now down by 24% since the start of January, making it the second weakest performer among the LME base metals after nickel.
Time-spreads loosened significantly around the middle of April, suggesting metal was accumulating off exchange. This month’s mini-squeeze has enticed some of that metal out of the shadows and there may be more to come. However, further up the supply chain there are already signs that the collapse in the zinc price is starting to constrain production.
SQUEEZE DRAWS OUT HIDDEN METAL
The trigger for the current spate of arrivals in the LME warehouse system appears to have been a sharp contraction in short-dated time-spreads earlier this month.
After trading in comfortable contango since the middle of April, the benchmark cash-to-three-months spread flipped into backwardation at the start of August. The cash premium spiked out to $36.50 per metric ton on Aug. 9, the tightest the period’s been since February.
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