Cash prices on the London Metal Exchange have surged above futures, signalling a growing shortage in western markets
[SHANGHAI] Chinese zinc producers are preparing to sell the metal overseas, as a rare trading opportunity opens up after a spike in international prices.
Zinc in London has marched higher since April, but in Shanghai it’s been bumping along close to its recent lows. The disconnect speaks to a two-speed sector, pitting growing output and relatively weak demand in China against a global market where smelters have cut production and stockpiles are thinning.
Cash prices on the London Metal Exchange (LME) have surged above futures, signalling a growing shortage in western markets. The market’s backwardation, which points to near-term tightness, is at its most extreme in three years.
China is the biggest producer of zinc, which is used to galvanise steel and thus heavily affected by the years-long collapse in the country’s property market. The last time it exported meaningful volumes was in 2022, after Russia’s invasion of Ukraine raised energy prices and triggered widespread smelter closures.
Now, the window for arbitrage is opening again, and some smelters are planning to sell to fabricators in South-east Asia, according to traders with knowledge of the matter, who asked not to be named because the deals are confidential.
“Some are testing export deals,” said Liu Yiting, analyst at Tianfeng Securities, adding that relatively tepid overseas demand might limit cargoes to 5,000 tonnes a month or less.
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Still, any effort to rebalance global supply is likely to take the sting out of the zinc rally in London.
The metal has been rising alongside copper, which is not far from all-time highs due to mine disruptions, but the two should decouple as the oversupply of zinc continues to build in China, said Alice Fox, commodities strategist at Macquarie Group in London.
China’s zinc and copper smelters, many of them state-affiliated, have proven to be adept at defending and expanding market share in recent years, as Beijing has prioritised security of supply over profitability.
Zinc declined in early trading on the LME, falling 0.3 per cent to US$3,012 a tonne by 10.09 am in Shanghai. BLOOMBERG