LONDON Deliveries of zinc to London Metal Exchange registered warehouses in places such as Port Klang, Malaysia and Singapore, not typical destinations, suggest an unusually large surplus of the metal used to galvanise steel.
Overall stocks of zinc in LME warehouses at 173,000 tonnes are more than three times the levels seen in early February and at their highest since October 2018.
Zinc market balance https://fingfx.thomsonreuters.com/gfx/ce/bdwvkeexrvm/Zinc%20markey%20balance.PNG
In Singapore, inventories have surged to 50,675 tonnes from 16,875 tonnes at the end of March and in Port Klang the number stands at 20,700 tonnes from zero.
“The overflow going to non-traditional locations gives you a sense of just how big the glut is,” said Citi analyst Oliver Nugent. Citi expects a 501,000 tonne surplus this year, about 3.6% of total supply.
“(But) the zinc price will probably hold up, it’s trading just below costs of production.”
Zinc stocks in surprising locations https://fingfx.thomsonreuters.com/gfx/ce/qmypmkkzkpr/Zinc%20stocks%20in%20Port%20Klang.PNG
Zinc prices at around $2,250 have climbed more than 30% since hitting four-year lows below $1,700 in the middle of March when growth stalled and demand for industrial metals collapsed due to COVID-19 lockdowns.
Price difference between LME cash and three month zinc contracts https://fingfx.thomsonreuters.com/gfx/ce/dgkplddnlpb/Price%20difference%20between%20LME%20cash%20and%203%20month%20zinc%20contracts.PNG
However, the discount for the cash over the three-month LME zinc contract has widened to $10 a tonne from a small premium on June 19 due to rising stocks and oversupply.
CRU analyst Helen O’Cleary expects refined zinc surpluses of 485,000 tonnes this year and about 300,000 tonnes next year.
“We estimate global unreported stocks — those not in exchange warehouses or reported by ILZSG (International Lead and Zinc Study Group) — stood at one million tonnes at the end of June,” O,Cleary said.
“We expect refined zinc demand will continue to recover in the second half of the year, although downside risks remain in the world outside China.”
LME and ShFE zinc stocks https://fingfx.thomsonreuters.com/gfx/ce/yzdpxnnmapx/Zinc%20stocks.PNG
Chinese demand for zinc has recovered alongside steel production and can be seen in stocks in warehouses monitored by the Shanghai Futures Exchange, which at 89,188 tonnes have dropped nearly 50% since March 13.
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