(Bloomberg) -- Zinc could see more sharp price swings as growing tightness along the metal’s supply chain leaves buyers exposed to sudden changes in availability.
The material used to galvanize steel had a turbulent past week on the London Metal Exchange, finishing nearly 5% higher despite a 2.5% slump on Thursday. The spike was fueled by the withdrawal of huge volumes from LME warehouses, which stoked speculation of a potential squeeze on short-position holders.
The volatile week underscored tight supply conditions that analysts see persisting into 2025. Any production cuts — either by miners or smelters — could provide the catalyst for more short-term price spikes, Shanghai-based analysts at Guotai & Junan Futures Co. wrote in a note. The level at which it’s safe to buy on dips was moving higher, they added.
The dynamics of the zinc market bear similarity to those in copper, as smelters in top producer China struggle with poor profitability after a period of rapid expansion. That ramp-up of capacity has left them in fierce competition for raw materials, raising the stakes for annual ore supply contracts that are still under negotiation.
Chinese copper smelters are still in talks with the Chilean miner Antofagasta Plc regarding the annual processing fee for next year. Progress on those discussions was slow last month when the industry gathered in Shanghai for CESCO Asia Copper Week, as expectations on prices from the two sides were split.
Spot copper treatment fees — paid to smelters to convert concentrate into metal — were at negative levels in mid-September, and a big drop in annual feed is likely to ramp up pressure on Chinese smelters to rein in output.
Zinc Inventories
Supply pressures have made zinc the best performer of the LME’s six base metals this year, with a gain of more than 15%. While demand in China has been subdued amid the downturn in the steel and property sectors, there have been production downgrades and other kinds of disruptions at major mines such as Ivanhoe Mines Ltd.’s Kipushi in the Democratic Republic of the Congo.
Trading giant Trafigura Group was behind last week’s big take-out orders from LME warehouses, according to people familiar with the matter. In the London market, traders are closely following whether the canceled zinc inventories will be re-registered as warehouse stockpiles at some point, or held off-exchange or fed to consumers.
On the Shanghai Futures Exchange, inventories also posted a sharp fall last week, declining by more than 9,000 tons for the biggest weekly drop in nearly a year.
On Monday, zinc declined 0.4% to $3,089.50 a ton on the LME as of 11:10 a.m. in Singapore. Copper also dipped, while aluminum gained. Meanwhile, iron ore edged up 0.4% to $104.40 a ton.
On the Wire
China’s manufacturing activity expanded for a second straight month, according to a private survey, a further sign of stabilization after Beijing unleashed a stimulus package to shore up the economy.
Electric car makers including Tesla Inc. and BYD Co. have unleashed further discounts and incentives in China in a final push to meet annual sales targets.
Swiss building materials company Holcim AG agreed to sell its Nigerian business to China’s Huaxin Cement Co. in a deal that values the asset at $1 billion.
The Week’s Diary
(All times Beijing unless noted.)
Monday, Dec. 2:
- Caixin’s China manufacturing PMI for November, 09:45
Tuesday, Dec. 3:
- BloombergNEF Summit in Shanghai, day 1
- Mysteel ferrous summit in Xiamen, Fujian, day 1
Wednesday, Dec. 4:
- China’s annual coal trade fair in Yantai, Shandong, day 1
- China Photovoltaic Industry Association annual conference in Yibin, Sichuan, day 1
- BloombergNEF Summit in Shanghai, day 2
- Mysteel ferrous summit in Xiamen, Fujian, day 2
- Caixin’s China services & composite PMI for November, 09:45
- CCTD’s weekly online briefing on Chinese coal, 15:00
Thursday, Dec. 5:
- China’s annual coal trade fair in Yantai, Shandong, day 2
- China Photovoltaic Industry Association annual conference in Yibin, Sichuan, day 2
- Mysteel ferrous summit in Xiamen, Fujian, day 3
Friday, Dec. 6:
- China’s annual coal trade fair in Yantai, Shandong, day 3
- China Photovoltaic Industry Association annual conference in Yibin, Sichuan, day 3
- China’s weekly iron ore port stockpiles
- Shanghai exchange weekly commodities inventory, ~15:00
Saturday, Dec. 7:
- China’s foreign reserves, including gold
--With assistance from Martin Ritchie.
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