(Bloomberg) — Zinc slipped from the highest level in more than four years, tracking losses in other metals while traders continue to monitor signs of supply tightness on the London Metal Exchange.
Futures initially climbed as much as 1% before heading lower on the LME, with all metals coming under pressure as European stock markets dropped. Still, like copper, the zinc market is showing signs of a near-term supply squeeze, with spot metal commanding a widening premium over futures.
Zinc for immediate delivery traded almost $200 a ton above three-month futures on Wednesday, the widest spread since December, and remained above $190 a ton on Thursday. Supplies of the metal on the LME and in the broader industry have tightened as ore shortages pushed processing fees charged by smelters well below zero.
A closely watched spread that represents the cost of rolling expiring spot positions by a day also spiked on Thursday, in a further sign of a short-term crunch. The so-called Tom-next spread climbed to about $13 a ton, the highest backwardation since March.
“Available physical liquidity is at extremely thin levels” on the LME, Guangzhou Future Co. wrote in a note. “Before mine output recovers materially, smelting costs will provide a strong floor for zinc prices.”
Treatment charges, the fees miners pay smelters to process ore into metal, have fallen as low as minus $110 a ton, according to Fastmarkets. While smelters can offset some of these losses by selling by-products, prolonged negative fees increase the risk of production cuts and a worsening supply squeeze.
The copper market has shown a similar trend, with widening short-term spreads, relatively low inventories and negative treatment charges. In the red metal’s case, potential US import tariffs have been a key price driver, fueling a surge in shipments into America and reducing availability elsewhere.
There have been fresh jitters about zinc supplies in Europe after a Glencore Plc smelter in northern Spain agreed to lower power consumption to support the stability of the country’s power grid. However, the Asturiana de Zinc plant has so far reduced power consumption for a few hours on a limited number of days, and the impact on output at the smelter is not expected to be material, Bloomberg reported on Wednesday.
Zinc slipped 0.8% to $3,861 a ton as of 11:40 a.m. local time on the LME. Copper fell 0.8% to $3,861 a ton. Prices have fluctuated after closing at a record $14,349.50 on Tuesday.
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