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Print[Ferro-Alloys.com] Zinc premiums in Southeast Asia have tripled this month as traders lock away more metal as collateral for short-term financing deals, with supply already hit by a long wait for delivery at key London Metal Exchange warehouses in the region.
A change this month in zinc's forward curve structure to a contango, where spot material costs less than for delivery further forward, has raised the allure of using the metal for financing, traders said.
They quoted zinc premiums paid on top of LME cash prices at USD100- USD120 a tonne in warehouse in Singapore, up from USD40- USD50 in early August. In Malaysia, premiums were quoted at USD70- USD80, up from USD15- USD20 in early August.
Three month zinc traded at a premium of USD24.75 against the cash contract on Thursday, a one-year high it first hit in mid August and up from a USD4 discount in July.
Low interest rates and global oversupply of metals after the 2008-2009 financial crisis have made financing deals steady earners.
Large scale warrant cancellations have led to low availability of stocks in three Asian ports approved by the LME for zinc storage, further fuelling the boost in premiums. Some 77,000 tonnes of LME warrants were cancelled, or scheduled for delivery, out of Port Klang sheds in late June.
"We doubt the recent surge in cancelled LME zinc warrants has anything to do with physical demand; more likely, it represents a shuffling of the deck of inventory held in financing deals," BNP Paribas said in a note in early July.
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