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    Aluminium and Zinc Futures contracts will be listed to satisfy investor appetite

    The Dubai Gold & Commodities Exchange (DGCX) and Dubai Commodities Clearing Corporation (DCCC) today announced an expansion to their existing portfolio of metals products with the launch of new base metal products. The two new products, Aluminium Futures and Zinc Futures, will go live on Friday 22nd March 2019.

    The new products will provide investors with an opportunity to mitigate the risks involved in the base metal markets and appeal to global participants by enabling them to hedge prices efficiently. The size of each Aluminium Futures and Zinc Futures contract will be 5 metric tons (MT), denominated and traded in US dollars.

    Les Male, CEO of DGCX, commented: “We are excited to introduce new products to meet the ever-growing needs of our member community. The imminent launch of these two products is a response to growing demands and investor feedback and will play an important role in the DGCX Group’s growth strategy moving forward. We are confident that they will further strengthen our value proposition to all participants across the non-ferrous metals supply chain while complementing our existing portfolio of diverse products.”

    The new products will be cash settled in US Dollars, and EFS, EFP and Block trading will be permissible in the contracts.

    “All trades in the new contracts will be cleared by our wholly-owned and regulated clearing house, the Dubai Commodities Clearing Corporation (DCCC). The DCCC is recognized by ESMA as a Third-Country Central Counter Party and has rightfully earned itself a credible reputation acting as a guarantor to all trades executed on the DGCX,” Male added.

    The London Metal Exchange (LME) launched seven new cash-settled futures contracts on Monday, including hot-rolled coil (HRC) steel, alumina and cobalt, aiming to attract more business after profits fell last year.

    The world’s oldest and largest market for industrial metals wants a stronger portfolio of products as competition intensifies with rival exchanges, such as CME Group Inc. of the United States.

    Trading was thin in the new contracts on Monday, but industry participants said it often took time for activity to gear up. By early afternoon in London, the only trades among the new contracts had been 40 lots of aluminum premiums.

    “It’s normal, most steel contract launches go slow,” said Jeff Kabel, chairman emeritus at the International Steel Trade Association (ISTA). “There could be some trades today, but I’d give it till mid-week or so.”

    The steel and alumina contracts have the best chance of succeeding, according to analysts, traders and other industry sources.

    The 142-year-old LME has lost market share in recent years to the CME and China’s Shanghai Futures Exchange (ShFE).

    The LME has been slower than its rivals to launch new products, but it has recently developed new technology that makes launching new contracts easier, faster and less expensive.

    The exchange hopes to boost volumes to make up for weaker revenues last year resulting from fee cuts as it rowed back after heavy criticism about a previous jump in fees.

    Volumes at the LME rose 5 percent last year, but core profit fell by 10 percent in the commodities segment of its parent, Hong Kong Exchanges and Clearing Ltd.


    The LME has high hopes for its new HRC contracts, believing it can tap into a massive global steel sector that has seen surging volumes develop in Chinese ferrous contracts.

    HRC is steel that is heat processed into metal sheets used for car bodies and household appliances.

    The LME is launching regional HRC contracts initially covering North America and China, and later adding northern Europe.

    They will compete with the CME’s Nymex exchange for U.S. metal and on ShFE for Chinese material.

    The LME already has steel rebar and scrap contracts.

    The LME also plans to launch a contract for alumina, the raw material to make aluminum, which has seen sharp price swings recently.

    The alumina price twice spiked and tumbled last year, opening up a market for both consumers and producers to hedge the price.

    The LME already has a physically-settled contract in cobalt, a metal key for electric vehicle batteries, but it hopes to gain more traction with its new cash-settled product <.

    The other new products are minor metal molybdenum plus two regional aluminum premium contracts for U.S. Midwest and Europe.

    After facing a tumultuous 2018, Wood Mackenzie Senior Research Analyst Rory Townsend feels that zinc smelters — not the miners — will push the battered commodity forward this year.

    In a presentation given at the Prospectors and Developers Association of Canada convention in Toronto, Canada, Townsend started by explaining some of zinc’s 2018 ups and downs.

    “After reaching the highs of about US$3,600 in mid-February, [it] then fell to subsequent lows below US$2,300 in September. While we do feel that the peak in the price was premature, we don’t feel that the dramatic fall in the price was supported by fundamentals as metal stocks continued to fall through the year,” he said.

    “So what was driving the zinc price? All the negative sentiment being driven by the escalation of trade disputes between the US and many of its major trading partners. As the year progressed, it became clear that the global economy was cooling, and with it, sentiment and metal prices deteriorated further.”

    With 2019 already in progress, Townsend laid out Wood Mackenzie’s predictions surrounding zinc mine production and what it means for the concentrate market.

    “We’re expecting a surge in mine production capability over the next few years. With increased production from Glencore’s (LSE:GLEN) Lady Loretta and McArthur River, to a host of projects and restarts ramping up such as MMG’s (HKEX:1208) Dugald River, Vedanta Zinc International’s Gamsberg … and Heron Resource’s (ASX:HRR) Woodlawn, to name a few.” he said.

    “So what does this new mine supply mean for the concentrate market? We’re expecting sequential years of global concentrate surplus for the next few years. This concentrate surplus is expected to be very large, peaking at over 800,000 tonnes per annum in 2020 and 2021.”

    Having titled his presentation “Zinc: Concentrate on the smelters, not the miners”, the senior research analyst emphasized that while production rates look promising, market watchers should keep their eyes on the smelters.

    “With regards to the global benchmark contract, the concentrate surplus, which we’ve forecast for this year should put an advantage in the hands of the smelters when it comes to the annum contract negotiations, and we’re expecting them to be certainly higher than what they were last year. We may well see escalators return to the contract,” he said.

    “Increased availability of concentrate combined with increased treatment charge revenue should enable global utilization rates to increase from 82 percent last year to 86 percent this year. Rest of the world smelters are already operating at around 92 percent utilization, so pretty high, but we’re expecting this to increase to historical highs around 2020.”

    As of March 5, zinc was trading at US$2,786 per tonne on the London Metal Exchange.

    Zinc prices jumped to a seven-month peak overnight, driven higher by a supply shortfall, dwindling stockpiles on the London Metal Exchange (LME) and expectations of solid demand from top consumer China.

    Benchmark zinc on the LME ended up 3.7 per cent at USD 2,838 a tonne after touching USD 2,840, the highest since July 3.

    The metal, used to galvanize steel, is up about 15 per cent this year.

    Mines have begun to produce more zinc concentrate but not enough metal is being refined to satisfy demand, pushing stocks in LME warehouses to their lowest in more than a decade and driving up the premium for nearby metal.

    “The refined market is still very, very tight,” said ICBC Standard analyst Marcus Garvey.

    “We’re probably not going back to a refined surplus until next year.”

    He also said recent increases in lending and local government bond issuance in China suggests demand for metals will remain solid through this year.

    Headline LME zinc stocks have fallen to 59,200 tonnes, the lowest since October 2007 .

    Between 50 and 79 per cent of warrants are held by a single entity and about a quarter of the metal is already earmarked for delivery.

    Suggesting a shortage of immediately available metal on the LME, the premium for cash zinc over the three-month contract has surged to USD49.50, the highest in two months.

    The International Lead and Zinc Study Group (ILZSG) said on Monday the global zinc market deficit narrowed to 28,000 tonnes in January from a revised deficit of 62,400 tonnes in December.

    The ILZSG showed a deficit of 384,000 tonnes last year and shortfalls of 442,000 tonnes and 128,000 tonnes respectively in 2017 and 2016.

    Analysts expect a fourth deficit this year.

    Speculative investors trimmed their net long position in LME zinc to 5 per cent of open contracts at the end of last week from 9.3 per cent in early February, according to brokers Marex Spectron.

    LME copper finished up 1 per cent at USD 6,472 a tonne, nearing a 7-month high of USD 6,540 touched on February 25.

    Headline LME copper stocks at 112,725 tonnes are the lowest since May 2008, and between 50 and 79 per cent of warrants are held by one entity, keeping the premium for cash metal over the three-month contract unusually high at USD 26 a tonne.

    The US dollar weakened for a third day, helping boost metals by making them cheaper for buyers holding other currencies.

    Aluminium closed up 1.4 per cent at USD 1,873 a tonne, nickel rose 1.6 per cent to USD 13,100, lead added 0.5 per cent to USD 2,085 and tin ended 1.3 per cent higher at USD 21,325.

    Vedanta Zinc International is facing a 5-week shutdown at its zinc refinery in Namibia following a strike by its mining contractor, which depleted stocks at the refinery.

    According to Reuters, miners were on strike from February 22 to March 6 which affected waste-stripping and ore mining at the asset. A spokesman for the Vedanta Resources (NYSE:VEDL) subsidiary told the outlet that the Skorpion zinc refinery continued to operate during the strike, clearing out ore stocks on hand.

    “It has therefore been decided to shut the refinery for a period of five weeks to allow the mine to rebuild adequate stock levels,” the spokesman said.

    The company said it would take the shutdown as an opportunity to conduct maintenance as opposed to later on in the year.

    “Every effort is being made to ensure that South African customers will not be affected by the temporary suspension, as they will be supplied from current inventory as far as this is possible,” the company said.

    The shutdown comes just weeks after the company officially opened its Gamsberg zinc mine in South Africa’s Northern Cape province. The asset’s first phase is expected to produce 4 million tonnes of ore per year from its open pit and 250,000 tonnes of concentrate per year from the concentrator plant.

    Meanwhile, refined zinc production at Skorpion is expected to hit 130 kilotonnes by 2020.

    Zinc, which was trading at US$2,877 per metric tonne on the London Metal Exchange (LME) as of March 13, has spent the last month holding steady with incremental moves upwards. However, analysts at FocusEconomics see the base metal’s price point sliding downwards, with a predicted price of US$2,633 per metric tonne by Q4 of this year.

    Vedanta’s share price made minimal movement by 11:41 a.m. EST on the NYSE, growing 0.25 percent to reach US$9.945 per stock.

    Another 100 tonnes of zinc were loaded out of the London Metal Exchange (LME) warehouse system on Monday.

    It wasn’t the most dramatic of moves but sufficient to reduce LME stocks to a fresh 12-year low of 58,325 tonnes – less than two days’ worth of global consumption and within touching distance of this century’s nadir of 58,100 tonnes recorded in October 2007.

    Such desperately low inventory has rekindled zinc’s bull flames. The LME three-month price rose to an eight-month high of $2,882 per tonne last week, up 18 percent this year, before easing slightly to current levels of $2,800.

    Time spreads remain tight and volatile but the premium for cash metal has so far failed to attract anything more than a smattering of fresh deliveries.

    The persistent tightness of LME stocks is forcing a collective rethink about the outlook for zinc, particularly the much anticipated shift to supply surplus.


    LME zinc stocks have fallen by 1.18 million tonnes from their 2012 peak.

    The exchange’s stock reports have thrown up many surprises over the intervening years, with the downtrend sporadically interrupted by mass movements of off-market metal onto LME warrant, particularly in New Orleans.

    But the New Orleans zinc round-about appears to have ground to a halt. The last significant inflow at the port was in October and there have been no arrivals at all this year.

    The only zinc to enter the LME warehouse system in 2019 has been a highly modest 2,150 tonnes at the Spanish port of Bilbao and a single-lot delivery of 25 tonnes at the Belgian port of Antwerp.

    Moreover, the headline LME stock figure includes 14,125 tonnes of metal earmarked for physical load-out, leaving just 44,200 tonnes of what are termed “open” stocks.

    Between 80 and 90 percent of that is held by one entity, according to the LME’s latest report, with the size of the position prompting the exchange to enforce lending rules to limit the daily pain for shorts trying to roll positions forwards.

    The benchmark LME time spread, cash-to-three-months, ended Monday valued at $36 per tonne backwardation. The cost of rolling a position overnight, the “tom-next” spread, was $3 at one stage this morning.

    Short position holders should be grateful for the LME’s lending rules. Such low stocks would once have generated ferocious backwardations – where spot prices are higher than forward prices.

    The widest backwardation so far in this chapter of the zinc story was the $125 traded for cash-to-three-months in November.

    If the downturn in stocks grinds on toward zero, such extreme spread contraction may yet return.


    LME stocks are only the visible tip of an industrial sector’s supply-chain inventory.

    Traders, merchants and financiers can hold stocks off market in cheaper non-exchange warehouses. Stocks can be in transit or sitting in China’s bonded warehouses.

    Assessing the size of such “gray” inventory is by its nature a tricky exercise.

    Analysts at ICBC Standard Bank have posited a figure of around 650,000 tonnes, including 230,000 tonnes of onshore and bonded Chinese stocks. (“Zinc – Where is the metal?”, Feb. 18, 2019)

    However, it’s becoming increasingly clear that if there are some 400,000 tonnes of off-market stocks outside of China, the owners are not interested in delivering them to an LME warehouse, at least not at the current cash premium incentive.

    Compare and contrast that with the LME copper market, where stocks had also fallen to extremely low levels, pushing spreads tighter.

    The broader availability of copper was amply demonstrated by last week’s 80,000-tonne surge of deliveries into the LME system.

    The broader availability of zinc is being tested and found wanting.


    That there is zinc in China should not be surprising given the country’s strong imports of refined metal. Last year’s tally of 713,355 tonnes was the highest ever and the second consecutive year of record imports.

    Rising zinc stocks on the Shanghai Futures Exchange (ShFE) — up by 103,935 tonnes since the start of January to 124,038 tonnes — would seem to signal a replenishment of China’s own depleted supply chain.

    Appearances can be deceptive, however.

    ShFE stocks always rise over the first couple of months of the Western year, reflecting a seasonal low point for manufacturing demand and the Lunar New Year holidays.

    Last year’s seasonal build was 90,000 tonnes to the end of March, providing some perspective on this year’s increase.

    China shows every sign of being in a deficit market, where imports plug supply gaps.

    Raw material from new and reopened mines should be boosting the country’s smelters as treatment charges have soared to over $200 per tonne for refining mined concentrate into metal.

    Yet Chinese production keeps falling. National refined zinc output slid 3.2 percent last year and was down another 8.2 percent in the first two months of this year, according to the official statistics agency.

    The need to comply with ever tighter environmental regulation is acting as a powerful counterbalance to the financial incentive to maximize production.

    This smelter bottleneck is preventing new mine supply translating into better refined metal supply.


    The time-line for zinc’s return to market surplus keeps shifting.

    ICBC Standard expects the concentrates market to return to balance this year before heading into surplus in 2020.

    However, the refined market will remain in deficit to the tune of 100,000-200,000 tonnes this year, split between surplus outside China and a large 600,000-700,000-tonne shortfall in China itself, according to the bank.

    “We therefore expect the SHFE-LME (arbitrage) to remain open for much of the year, pulling international metal and concentrate into China,” it said.

    If ICBC Standard is right, the LME zinc contract is going to have to get used to such paltry stock levels.

    Which means it’s also going to have to learn to live with the resulting time spread tightness.

    Backwardation could be here for a while.

    Commodity giant Glencore on Friday said it had suspended operations at its McArthur River zinc mine in northern Australia as a cyclone approaches.

    Authorities have declared a state of emergency in the region as Tropical Cyclone Trevor nears, with the nation’s weather bureau on Friday saying the storm was intensifying and warning of a “severe impact” ahead of landfall on Saturday morning.

    At the same time, areas further west are bracing for the arrival of another cyclone, named Veronica, with key iron ore ports there being cleared.

    “(The McArthur River mine) is preparing for Cyclone Trevor in line with our standard cyclone procedures,” a Glencore spokesman said in a statement emailed to Reuters.

    “We are suspending mining operations onsite and shipping operations at (the) Bing Bong loading facility.”

    That comes after commodity giant Rio Tinto on Wednesday suspended its Weipa bauxite mining operations at the northeastern tip of the country ahead of the cyclone.

    Meanwhile, Rio, BHP and Fortescue have all cleared their ships from ports ahead of Cyclone Veronica’s expected landfall south of the world’s largest iron ore export hub of Port Hedland on Sunday.

    Zinc touched a two-week low on Wednesday on concerns that Chinese smelters will ramp up output, but prices were supported by a shortage of immediately available material on the London Metal Exchange (LME). Benchmark zinc on the LME closed 0.4 percent up at $2,873 a tonne after slipping to $2,842, its lowest since March 26.

    Deficits have driven LME stocks to record lows and pushed zinc, used to galvanize steel, to a nine-month high of $2,958 on April 1.

    But the supply situation is expected to change rapidly after Chinese treatment charges soared to $240 a tonne from a low of $12.50 at the start of 2018. Smelters are likely to seize the opportunity to make money by ramping up production in the second quarter, said Deutsche Bank analyst Nick Snowdon.

    LME STOCKS/SPREAD: Headline stocks in LME-registered warehouses, at 52,550 tonnes, are down from 129,000 tonnes at the start of the year. The premium for cash zinc over the three-month contract has shot to $74.50 from close to zero in early February, suggesting a shortage of nearby material.

    SHFE STOCKS: However, stockpiles in warehouses monitored by the Shanghai Futures Exchange (ShFE), at 108,772 tonnes, are up from about 20,000 tonnes at the start of the year.

    MINE SUPPLY: Global mine supply of zinc is expected to rise 6.4 percent this year to 13.87 million tonnes, according to the International Lead and Zinc Study Group (ILZSG).

    REFINED SUPPLY: But higher mine production has been slow to feed through to the refined market, with the ILZSG showing a 384,000 tonne deficit in 2018 and another shortfall in January.

    GLOBAL GROWTH: The IMF cut its forecast for world economic growth this year to 3.3 percent from 3.5 percent and said the chances of further cuts are high.

    TRADE WAR: U.S. President Donald Trump threatened to impose tariffs on $11 billion worth of European Union products, opening a new front in his trade war.

    LAS BAMBAS: An indigenous community voted to suspend its two-month road blockade of Las Bambas, a large Peruvian copper mine, for two days until the government visits the region on Thursday.

    ALUMINA: Emirates Global Aluminium said its Al Taweelah alumina refinery in Abu Dhabi had commenced operation. It is expected to produce 2 million tonnes of alumina a year once fully operational.

    OTHER METALS: LME copper ended 0.4 percent down at $6,464 a tonne, aluminium fell 0.8 percent to $1,864, lead slipped 1.1 percent to $1,953.50 and tin eased by 0.1 percent to $20,850. Nickel did not trade but was bid 0.1 percent lower at $13,230. 

    New Century Resources’ successful ramp-up of plant performance at its Century zinc mine in Queensland is validating its decision to expand in 2019.

    The company has completed installing a third mining cannon and pumping system, which allows the operations to ramp up to a mining rate of 8–10 million tonnes a year during the second quarter of 2019.

    New Century will then ramp up to a 15 million tonne-a-year mining rate with the implementation of a total of five cannons by the end of 2019.

    The operations’ metal production increased by 50 per cent during the first quarter of this year, hitting 18,170 tonnes of zinc metal in 37,500 tonnes of concentrate grading 48.3 per cent zinc (compared with 25,500 tonnes at 47 per cent in the fourth quarter of 2018).

    The quality of Century’s zinc concentrate continued to improve significantly over the first quarter of this year, with a 25 per cent increase in the lead impurity content.

    Century’s total zinc recoveries were averaging 50 per cent for March 2019 and peaking at 54 per cent – 86 per cent of the design target.

    It demonstrates the significant improvement in its plant metallurgical performance at a time when wet season effects and mining of the tailings dam caused an eight per cent reduction in zinc metal mined, according to New Century.

    Century’s silver content of 152 grams a tonne within the concentrate remained in line with previous quarter operations.

    Belgian metals and mining company Nyrstar’s major shareholder Trafigura Group is set to take control of the company as part of a recapitalisation plan, Nyrstar said on Monday.

    Nyrstar said it would sell its operating group to a newly incorporated subsidiary, NewCo. As part of its recapitalisation, commodities trader Trafigura will be issued 98 percent share capital of NewCo.

    Trafigura will provide up to $250 million of secured financing to Nyrstar in order to keep its operations afloat in the interim period, Trafigura said here in a separate statement.

    “Nyrstar has been faced with substantial financial and operational difficulties over the last few years, but it also has very solid industrial and mining operations on which we can build a stable future,” Trafigura Chief Executive Officer Jeremy Weir said.

    Trafigura said the financing would be in addition to the $650 million working capital facility granted to Nyrstar in November.

    Rating agency S&P downgraded Nyrstar’s bonds last month after the miner deferred payment of coupons due on its 2019 and 2024 bonds as it held restructuring talks with shareholders.

    Zinc is coming under sustained attack from bearish funds.

    The trigger for the assault was Tuesday morning’s London Metal Exchange (LME) stocks report, showing 10,625 tonnes of inflow into exchange warehouses.

    The London zinc price slumped from $2,867.00 per tonne to $2,821.50 in 30 minutes. It stabilized briefly before heading lower and was last around $2,815.00.

    Funds have pounced on the stocks signal as evidence that zinc’s period of maximum supply tightness is now passing.

    They have been emboldened by signs that the raw materials segment of the supply chain has transitioned from shortfall to surplus. Metals surplus, zinc bears reason, must surely follow.

    However, timing this shift in underlying market dynamics is difficult.

    Similar bear attacks took place in September last year and again in February. In both cases they proved premature, the price recovering to a nine-month high of $2,958.00 at the start of April.

    Have they called it right third time around? There are reasons to be cautious.


    Zinc bears have got one thing right.

    There can now be no doubting that the mined zinc concentrates segment of the market has flipped from supply deficit to surplus.

    The gauge of the transition comes in the form of treatment charges, which are what a zinc smelter receives from a miner for converting concentrate into metal.

    Spot charges have been on a steep upward trend in recent months as more raw material becomes available from new and restarted mines, such as New Century Resources, which has just reported a 50-percent jump in first-quarter production.

    What looks like the benchmark deal for 2019 deliveries has confirmed the turnaround.

    Canada’s Teck Resources and South Korean smelter Korea Zinc Inc have sealed a deal with a headline treatment charge of $245 per tonne.

    That marks a sharp bounce from last year’s treatment charge of $147 per tonne and is the highest annual level achieved since 2015.

    The swing in favor of smelters is reinforced by the return of price participation after two years of none.

    The boost to smelter margins should stimulate higher capacity utilization and allow raw materials surplus to travel down the supply chain into improved availability of refined metal.

    This is particularly true of China, where refined zinc production has been sliding for over a year due to lack of raw materials.

    Outside of China, the jump in treatment charge should come as a welcome relief to beleaguered Nyrstar, the world’s second-largest refined zinc producer.

    The Belgian company has seen margins crushed over the last year to the point that it’s needed another financial bail-out from Trafigura to survive. This one will see the Swiss trade house assume almost complete control with a 98-percent stake in a new operating company.


    The change of supply dynamics in the zinc concentrates market has been closely followed by funds looking to play zinc from the short side.

    Their problem so far is that it’s taken much longer than expected for mine surplus to become refined metal surplus, hence the two ultimately failed attempts to drive prices lower in the third quarter of last year and the first quarter of 2019.

    Tuesday’s LME stocks report seems to be proof that things are starting to change in the refined metal market. But as ever with the London market, appearances can be deceptive.

    The latest “arrivals” of zinc in the LME storage network bring the cumulative inflow so far this month to 20,800 tonnes.

    That’s lifted headline LME inventory from a multi-year low of 50,425 tonnes to a current 66,475.

    But this apparent evidence of surplus might counter-intuitively be a sign of continued market tightness.

    It’s no coincidence that metal is flowing into the LME system right now.

    It’s doing so because of another, particularly vicious cash-date squeeze on the LME zinc contract.

    The LME’s “tom-next” spread, essentially the cost of rolling a short position overnight, flexed out to an unprecedented $60 per tonne last Friday.

    That trade was something of a one-off, Refinitiv time and sales data showing the spread traded only once at that level in the form of an end-of-day client cross.

    But “tom-next” remained in steep $20-per-tonne backwardation over the course of Monday morning ahead of the clear-out of April positions on the ensuing open outcry “ring” session.

    “Tom-next” was on Tuesday morning trading more calmly but the broader cash-to-three-months spread remains tight, ending Monday valued at $68 backwardation.

    Faced with such severe penalties for rolling short positions, some have evidently opted to deliver physical metal against their exposure.

    The 8,000 tonnes of zinc that showed up in LME warehouses in Rotterdam in Tuesday morning’s report has all the signs of being a distress delivery from off-market storage.

    True, it’s evidence that there is more metal “out there” beyond the depleted LME inventory but it’s only been drawn into the LME system by what is by historical standards an extreme level of tightness.


    Timing zinc’s price peak is turning out to be just as tricky as timing the original rally.

    There were several false starts to that rally as funds bought into the zinc deficit narrative only to be wrong-footed by sudden, large-tonnage deliveries of zinc into the LME storage network.

    LME stock signals turned out to be a poor proxy for underlying market dynamics.

    The question is whether they are any more reliable right now. This month’s deliveries of metal into LME sheds may not be a sign of imminent surplus but simply a normal market reaction to the elevated cash premium. That premium is predicated on a lack, rather than a surplus, of metal in the LME system.

    Zinc bears are betting rising stocks mean the days of surplus have arrived.

    If they’re wrong, there will be more pain for short-position holders in the weeks ahead.

    Zinc prices sank to a one-month low on Thursday after inventories in London Metal Exchange (LME) warehouses climbed and weak manufacturing data in Europe took the shine off base metals.

    Base metals prices had jumped in the previous session after upbeat GDP data from top consumer China but fell on Thursday as the dollar rose and manufacturing activity in Germany shrank.

    LME zinc inventories MZNSTX-TOTAL rose to their highest level in nearly two months, up 7,225 tonnes to 73,575 tonnes, according to exchange data.

    “It’s a broader weakness across base metals but zinc is definitely leading the way because stocks are up 11 percent,” said ING analyst Warren Patterson.

    “We still are looking at a deficit in the zinc market but it is reducing,” he said.

    LME zinc stocks have halved this year and touched their lowest since at least 1998 earlier this month due to bottlenecks in processing capacity, making the metal the second best performer in 2019.

    Benchmark zinc finished 1.9 percent lower at $2,767 per tonne, after touching its lowest since mid-March at $2,751.

    ZINC SPREADS: The premium of LME cash zinc over the three month contract CMZN0-3 was around $87 a tonne, down from a high of $120 touched a week ago.

    TREATMENT CHARGES: Korea Zinc Inc and Teck Resources Ltd agreed annual concentrate treatment charges of about $245 a tonne, 67 percent higher than last year, as mine supply ramps up.

    The agreement, along with higher spot treatment charges, is good news for smelters that have been struggling with low charges for years due to low mine supply.

    “These are all signs that the concentrate supply picture is improving and that should feed through to the refined market eventually,” ING’s Patterson said.

    DOLLAR: The dollar rose against a basket of currencies, making most metals it is priced in more expensive, including base metals.

    Zinc prices hit their lowest since mid-March on worries about global demand and as inventories climbed, but other metals were supported by hopes that a U.S.-China trade deal would be agreed.

    Investors have been worried after data on Tuesday showed factory growth in top metals consumer China slowed unexpectedly in April, with a survey on Thursday showing that Euro zone factory activity contracted for a third month.

    “I think it’s still premature to buy. The current picture is that the worst is over, but conditions remain weak in the global economy. We need to see some real improvement for metals prices to really find the bottom,” said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan.

    “But in zinc and copper, supplies are still pretty tight, so I think that will keep us from seeing severe losses.”

    Benchmark zinc on the London Metal Exchange fell 1.5 percent in closing open-outcry trading to $2,731 a tonne after touching $2,717, its lowest since March 11.

    Most industrial metals slumped on Wednesday as computer-driven funds sold after an options expiry, with aluminium and lead prices hitting their lowest in more than two years.

    * ZINC STOCKS: LME zinc inventories MZNSTX-TOTAL rose to 88,750 tonnes, the highest since Feb. 15 and up 70 percent over the past three weeks, LME data showed on Thursday. However, prices are still low by historical levels and have slid by half since October.

    * HINDUSTAN ZINC: India’s Hindustan Zinc, the world’s second-largest zinc miner, expects its output to grow in 2019/20 after a drop in the previous financial year.

    Zinc prices hit four-month lows on Monday as investors fretted about rising supplies from top producer China, while industrial metals overall came under pressure from trade tensions between the United States and China.

    Benchmark zinc on the London Metal Exchange ended down 1.0% at $2,575 a tonne. Earlier, prices of the metal used to galvanise steel touched $2,553, the lowest since Jan. 22. It is down about 9% so far in May.

    “There was another wave of selling this morning. The idea of much higher zinc supplies in China in the second half has hit sentiment,” a zinc trader said.

    “It looks like there isn’t going to be a resolution to the trade dispute any time soon, that uncertainty will keep up pressure on the base complex.”

    ZINC: Analysts expect China’s zinc production to climb around 5% in May from April to above 560,000 tonnes. Higher numbers are expected in the second half as new capacity ramps up.

    A Reuters survey published earlier in May shows analysts on average expect a surplus of 20,000 tonnes this year after years of deficits, in a market estimated around 14 million tonnes.

    POSITIONS: “Speculative positioning in zinc as of last Thursday shifted from flat to a net short of 2.1% of open interest or 3,300 lots (82,500 tonnes),” Marex Spectron analysts said in a note. “Whilst relatively small, this is a level not seen since Dec. 2018”.

    STOCKS: However, low stocks of zinc in LME-approved warehouses, at 104,850 tonnes from above 250,000 tonnes in August last year, and large holdings of LME warrants are fuelling nervousness about shortages on the LME market. MZNSTX-TOTAL <0#LME-WHL>

    This can be seen in the premium or backwardation for the cash over the three-month contract which ended at a 20-year high $150.50 a tonne on Friday. MZN0-3

    TRADE: No further trade talks between top Chinese and U.S. negotiators have been scheduled since the last round ended on May 10 – the same day Washington raised the tariff rate on $200 billion worth of Chinese products to 25% from 10%.

    PRICES: Copper ended 0.4% down at $6,029 a tonne after earlier touching $6,004, its lowest since Jan. 29.

    Aluminium lost 2.1% to $1,797.5, lead slipped 1.2% to $1,804, tin ceded 0.3% to $19,450.

    Nickel was untraded at the close, but was 0.3% lower at $11,980 on the LME’s electronic system.

    DEAL: Aluminium came under pressure after the United States on Friday struck deals to lift tariffs on steel and aluminium imports from Canada and Mexico.

    Most of the impact is expected to be seen in the physical market premium — paid above the LME price — for aluminium consumers in the United States. Last week the premium was above $400 a tonne.

    Zinc prices rose sharply in London and Shanghai in early trade on Tuesday, as investors
    worried about dwindling inventories of the metal used to galvanise steel. The London Metal Exchange reopened on Tuesday after the
    Spring bank holiday in the United Kingdom on Monday, which was also the Memorial Day holiday in the United States.
    * ZINC: Three-month LME zinc rose as much as 1.5% to $2,599 a tonne and stood at $2,580 as of 0132 GMT. The
    most-traded July zinc contract on the Shanghai Futures Exchange  climbed as much as 2.4% to 20,795 yuan ($3,014.95) a
    tonne, its highest since April 4.
    * STOCKS: ShFE zinc stocks ZN-STX-SGH fell by 18.1% from the previous week to 56,320 tonnes, according to data released
    by the bourse on Friday. LME zinc inventories MZN-STOCKS fell for five straight days last week and stand at 102,600
    * SPREADS: The premium of cash LME zinc over the three-month contract CMZN0-3 hit $161 a tonne on Friday, the highest in 22
    years, indicating tight near-term supply.
    * COPPER: LME copper rose 0.7% to $5,995 a tonne, while ShFE copper edged up 0.2% to 47,250 yuan a tonne.
    * COPPER: The head of state-run miner Codelco, the world's largest copper producer, said Chile's mining industry was
    increasingly held back by new environmental regulations and the low productivity of Chilean workers, local daily La Tercera
    reported on Monday.   
    * COPPER: China's Yanggu Xiangguang Copper Co has restarted its 400,000 tonne per year copper smelter in Shandong province
    after an overhaul that lasted about 50 days, a company official said on Monday.
    * ZAMBIA: Vedanta Resources is open to dialogue with the Zambian government but will defend its legal rights and
    opposes the appointment of a provisional liquidator at its Konkola Copper Mines business, the company's CEO said on Monday.
    * Asian shares tracked European gains, as relief over EU election results eased concerns about political difficulties in
    the bloc and merger news supported auto shares, although persistent concerns about trade capped regional sentiment.

    Zinc prices fell to their lowest in two weeks on Thursday as rising Chinese production and a collapse in the premium for cash metal on the London Metal Exchange (LME) pointed to a better supplied market.

    Benchmark zinc on the LME ended down 1% at $2,425 a tonne, within a whisker of last month’s level of $2,412, the lowest in 5-1/2 months.

    The metal used to galvanize steel has tumbled more than 30% from a high early last year as a U.S.-China trade war weakened the demand outlook and traders braced for a surge of refined metal to end a supply shortfall.

    Rising Chinese output, rumours that zinc is moving from Chinese bonded storehouses into the LME warehouse system and a big fall in the premium for LME cash zinc were pushing prices lower, Deutsche Bank analyst Nick Snowdon said.

    “You could see more downside to the low $2,000s,” he said, adding that prices were unlikely to fall much lower because of the low level of warehouse stocks.

    DEFICIT: Higher output by Chinese smelters is expected to end a deficit that according to the International Lead and Zinc Study Group (ILZSG) amounted to 97,000 tonnes during the first four months of this year.

    CHINESE OUTPUT: Chinese refined zinc output at 480,000 tonnes was up 7.4% in May compared to the same month in 2018.

    Global production of zinc is around 13.5 million tonnes a year.

    SPREAD: The premium for cash zinc over the three-month contract on the LME fell to $9.50, down from more than $150 in May and the lowest since March, suggesting greater availability of nearby metal. MZN0-3

    STOCKS: Zinc inventories in LME and Shanghai Futures Exchange (ShFE) warehouses fell in recent months to the lowest in more than a decade, but levels have begun to recover. MZNSTX-TOTAL ZN-STX-SGH

    TRADE WAR: Top representatives of the United States and China are organizing a resumption of talks for next week to try to resolve a year-long trade war between the two countries, Trump administration officials said.

    GLOBAL FACTORIES: Data this week showed factory activity weakening in major economies around the world.

    U.S. ECONOMY: The United States added fewer jobs than expected in June and its trade deficit jumped in May, suggesting economic growth slowed sharply in the second quarter.

    London zinc prices fell on Wednesday, ending a five-session streak of gains, after data showed a global zinc market deficit narrowed in May.

    Three-month zinc on the London Metal Exchange (LME) fell 1.2% to $2,425 a tonne by 0210 GMT, after climbing 5% in the past five sessions.

    The most-traded zinc contract on the Shanghai Futures Exchange (ShFE), however, rose 0.7% to 19,380 yuan ($2,817.23) a tonne, tracking gains on the LME in the previous session.

    The global zinc market deficit narrowed to 27,200 tonnes in May from an upwardly revised deficit of 87,500 tonnes in April, data from the International Lead and Zinc Study Group (ILZSG) showed.


    * ZINC STOCKS: Zinc inventories in LME-approved warehouses MZNSTX-TOTAL have risen around 60% since April when the stockpiles hit a record low, while stocks in warehouses tracked by ShFE ZN-STX-SGH have jumped 268% year-to-date.

    * ZINC SPREAD: The premium of cash over three-month zinc contracts on the LME CMZN0-3 eased to $4 a tonne on Tuesday, from $12 in the previous session, indicating more nearby supplies.

    * LEAD: The global lead market recorded a 13,400-tonne surplus in May after a deficit of 30,800 tonnes in April, data from the ILZSG showed.

    * NICKEL: Kazakh entrepreneur Kenes Rakishev said on Tuesday he had sold his stake in gold miner Petropavlovsk and would invest the proceeds in a cobalt and nickel project he aims to list in Hong Kong.

    * PERU COPPER: Peruvian President Martin Vizcarra rejected a demand from a regional governor on Tuesday to cancel a permit for Southern Copper Corp’s $1.4 billion Tia Maria copper mine project amid protests from local residents.

    * TRADE DEAL: President Donald Trump said on Tuesday the United States still has a long way to go to conclude a trade deal with China but could impose tariffs on an additional $325 billion worth of Chinese goods if it needed to do so.

    * PRICES: LME copper fell 0.6%, aluminium eased 0.4%, nickel fell 0.8% and tin edged down 0.3%. Shanghai copper eased 0.1%, aluminium dipped 0.1%, while nickel jumped 2.1%.

    Belgium’s Nyrstar said on Monday it had shut down its zinc-lead smelter furnace in Port Pirie, Australia, after an incident in the second disruption at the plant this year.

    An unidentified incident occurred in the hearth in the primary smelter and caused a forced shutdown of the plant with no injuries, Nyrstar said in a statement to Reuters. “Repairs will result in the (furnace) being down for a number of weeks and a number of options are being considered including a re-start of the sinter plant to maintain production,” the company said. Port Pirie produced 160,000 tonnes of lead in 2018, according to data on Nyrstar’s website. Nyrstar restarted production Port Pirie in late July after a nearly two-month shutdown because of an unplanned outage at the site’s blast furnace that disrupted its shipments to customers. Nyrstar lost 30,000 tonnes of lead metal due to the outage, the company said on July 19. Global trading house Trafigura took over the troubled smelter last month. (Reporting by Pratima Desai in LONDON and Melanie Burton in MELBOURNE; editing by Christian Schmollinger)

    Tropical Cyclone Veronica is forecast to make a sharp turn at the coast, setting it on a path toward Australia’s biggest gas export hub and sparing the nation’s iron ore heartland.

    After making landfall Sunday, the cyclone is lingering near the Western Australia coast and is forecast to weaken further Monday as it moves west toward the Burrup Peninsula, according to the weather bureau. That’s in the direction of some of the nation’s biggest liquefied natural gas projects, including the Woodside Petroleum Ltd.-operated North West Shelf LNG and Chevron Corp.’s Gorgon LNG.

    Woodside on Monday said that the NWS and Pluto LNG projects near Dampier are using essential staff only at the plants and that it evacuated all workers from offshore platforms. Chevron didn’t respond to requests for comment. Both projects last week were rescheduling cargo loadings as the storm approached, according to traders with knowledge of the situation.

    While Veronica has eased to a category 2 cyclone, it’s still lashing the coast with destructive winds in excess of 125 kilometers (78 miles) per hour and dumping heavy rain conducive to major flooding. Ships left ports and workers were evacuated last week ahead of the approaching storm, which was initially forecast to track inland through the Pilbara, the region where BHP Group and Rio Tinto Group have major iron ore mining operations.

    BHP was deploying staff to assess damage after a red alert was lifted at Port Hedland, the country’s key iron ore export hub, the miner said in a statement. “Initial inspections show water damage to some buildings at Nelson Point,” the company said.

    Lithium producer Altura Mining Ltd., which halted output at a mine in the northern Pilbara region, said the impact had been less severe than expected and wouldn’t cause damage to a processing plant. “It was apparent throughout Saturday and Sunday that the destructive winds forecast did not occur in the project or camp site area,” the company said in a statement.

    Operations Resume

    While mines appeared to have been spared, export ports used by Rio, BHP and Fortescue Metals Group remain shuttered as the cyclone sits off the Pilbara coast. Port Hedland, Dampier and Ashburton are still closed, the Pilbara Ports Authority said in a statement. Dampier — used by Rio — remains subject to a cyclone red alert, according to Western Australia’s emergency services.

    Australia’s north was also hit by Tropical Cyclone Trevor, which crossed the Northern Territory coast on Saturday morning as a category 4 storm with wind gusts of 250 kilometers per hour. The storm was downgraded to a tropical low on Sunday morning. Glencore said it was resuming operations at its McArthur River zinc mine and Bing Bong port, which had been evacuated earlier. South32 was also restarting the GEMCO manganese operation.

    Copper slipped on Monday after weak Chinese data fuelled worries about demand, but lead and zinc hit multi-months peaks after a mine suspension.

    China’s industrial production grew at the weakest pace in 17-1/2 years last month and fixed-asset investment in January-August increased at a slightly lower rate than expected, data showed.

    China is the biggest user of copper, which is used widely in power and construction.

    “It was definitely weaker than expected. Copper has rallied pretty decently over the past couple weeks, but this was a little reminder that the underlying fundamentals are still questionable,” said Colin Hamilton, director of commodities research at BMO Capital.

    Chinese Premier Li Keqiang said it is “very difficult” for the world’s second-largest economy to keep growing at a rate of 6% or more, after a 6.3% expansion in the first half of the year.

    Three-month copper on the London Metal Exchange (LME) slipped 1.8% to $5,870 a tonne in final open-outcry trading after hitting a 1-1/2-month high in the previous session.

    At its peak on Friday, copper had rebounded 8% since touching a two-year low on Sept. 3.

    Vedanta Resources said on Thursday it would shut its Skorpion zinc operations in Namibia from early November until the end of February 2020.

    The company said in a statement the closure was due to technical problems which resulted in reduced ore production at the Skorpion site.

    Skorpion expected to produce around 90,000 tonnes of zinc last year, according to Vedanta’s website.

    The global zinc market is around 14 million tonnes a year.

    Benchmark zinc on the London Metal Exchange was up 3.7% at $2,375 a tonne at 1543 GMT, outperforming other industrial metals.

    Zinc treatment and refining charges are expected to stay at high levels due to rising mine supply from Australia and South Africa, Chinese smelters, overseas miners and traders said this week at an industry gathering in China.

    Next year’s annual zinc TC/RC benchmark is expected to be higher than this year’s, which was agreed between Korea Zinc and Teck Resources at around $245 per tonne, but not quite as high as current spot levels of almost $300 per tonne, Duncan Hobbs, research director at trading house Concord Resources Ltd said.

    “TCs are expected to remain high and annual benchmarks are going to be trending higher probably for the next few years,” Oliver Nugent, analyst at Citi in London said adding, “mine supply should be outpacing smelter capacity and rebuilding concentrate stocks for the next couple of years.”

    He added that recent increases have been driven by smelter bottlenecks but going forward increased mine supply will be the predominant driver.

    Wood Mackenzie expects zinc concentrate to remain in surplus in 2020, with around 1 million tonnes of annual capacity to be added by 2023. Last year’s global supply was just under 13 million tonnes.

    A source with one trading house said Chinese zinc smelters have been offering TCs at around $300 for concentrate supply in the first quarter of 2020. But most traders said they were in no rush to make a deal ahead of more industry gatherings this month.

    A Chinese smelter source said more mine supply will come online and smelter output will not improve much. But he said there was not much room for the TC to go higher.

    The International Lead and Zinc Study Group will host a conference in Lisbon next week, before the flagship LME Week event takes place in London at the end of October.

    Spot TCs, or fees that miners pay smelters to process zinc ore into refined metal, have climbed relentlessly in 2019 to an 11-year high of $290 a tonne, as fast-rising mine supply overwhelms limited smelting capacity.

    The more than a decade-high TC “is a strong incentive for zinc smelters to produce as much metal as they can,” Hobbs said.

    But most miners at the China Lead and Zinc Conference in Kunming this week said current TCs were tolerable provided zinc prices hold close to $2,500 a tonne and would not force them to close, although $2,000 would be a different matter, they noted.

    “All of us are hurting at the moment. But these things come in cycles,” one miner said.

    London Metal Exchange (LME) zinc hit a 2-1/2 month high of $2,441 a tonne on Tuesday amid low stockpiles and some smelter outages but are down 2% year-to-date and remain under pressure from the U.S.-China trade war.

    Sherry Shen, a senior consultant at Wood Mackenzie, said that even at $2,200 a tonne next year, only around 6% of global zinc miners, accounting for some 700,000 tonnes of capacity, would fail to profit and potentially cut output.

    If zinc falls to $1,900, those numbers would rise to 20%, or about 2 million tonnes capacity, Shen said.

    But the current TC level of around $285 a tonne is already “terrible” for miner profitability, said Simon Aviles, a commercial adviser at Bolivian zinc miner Empresa Minera Sudamericana Andina.

    “It’s like a shoebox. Only so much production will fit in. We miners have to compete with one another. The smelters know this so they just keep raising the TC,” Aviles told Reuters, adding the solution would be to “build more smelters”.

    Zinc prices rose on Wednesday as available stocks in London Metal Exchange (LME) warehouses slipped to their lowest levels in more than two decades despite expectations of increased supply.

    Copper also ticked higher after protests disrupted some supply in top producer Chile.

    Benchmark zinc was up 0.2% at $2,473.50 a tonne at 1425 GMT, around the highest since July and up from a three-year low of $2,190 on Sept. 3.

    “The fundamental story (with zinc) is that the transition to a surplus market keeps being pushed back,” ING analyst Wenyu Yao said. Before long, however, additional supply will come through and push prices lower, she added.

    ZINC STOCKS: On-warrant inventories in LME-registered warehouses fell to 35,125 tonnes, the lowest since at least 1998. MZNSTX-TOTAL

    SPREAD: Cash zinc traded at a $35 premium to three-month metal, up from around zero over July-September, suggesting lower availability of nearby material. MZN0-3

    POSITIONING: Speculative positioning was largely flat after a bout of short covering, brokers Marex Spectron said.

    FUNDAMENTALS: The global zinc market saw a 106,000-tonne shortfall over January-July, the International Lead and Zinc Study Group said this month.

    COPPER: Benchmark copper was up 0.4% at $5,841 a tonne. Prices remain near last month’s two-year low of $5,518, however, with gains capped by concerns that weakening global growth will restrain demand.

    CHILE DISRUPTION: Antofagasta warned that unrest could lower its output by about 5,000 tonnes, equivalent to less than 3% of third-quarter production.

    Codelco said one of its mines was shut and operations at a smelter drastically reduced. Union workers at BHP’s Escondida copper mine downed tools on Tuesday.

    FUNDAMENTALS: The International Copper Study Group said the market would return to a surplus of 281,000 tonnes in 2020 after a 320,000-tonne shortfall this year.

    FREEPORT: Miner Freeport McMoRan said its copper output fell 14% in the third quarter.

    NICKEL: LME nickel was 0.5% higher at $16,595 a tonne, with the premium for cash metal versus the three-month contract tumbling to $2 from more than $200 at the start of October, suggesting shortages of nearby material have eased. MNISTX-TOTAL MNI0-3

    LME PROBE: The LME has asked members to report any unusual activity in nickel trading after prices lurched up and down in the wake of large transactions last week, sources said.

    ALUMINIUM: Miner Rio Tinto flagged a possible pullback or closure of New Zealand’s Aluminium Smelter, citing weakness in the aluminium market and high energy costs.

    Tajikistan cut its aluminium output growth target for this year to 5% from 20%, a government source said.

    Producer Norsk Hydro said it expected global aluminium demand growth to hover around zero this year, down from 3.1% in 2018.

    OTHER METALS: LME aluminium was up 0.6% at $1,729 a tonne, lead was down 0.4% at $2,209.50 and tin was 1.6% lower at $16,580.

    Zinc prices climbed towards 4-month peaks on Monday as slumping stocks fuelled fears of shortages, while copper hovered near five-week highs on hopes of progress in trade talks between the United States and China.

    Benchmark zinc on the London Metal Exchange was untraded in the closing rings, but was bid up 1.3% to $2,542 a tonne.

    Prices of the metal used to galvanise steel earlier touched $2,549, moving back towards last week’s peak of $2,567.35, which was the highest since June 14.

    “Visible zinc stocks are minimal, I can’t remember the last time they were so low,” a metal trader said. “Copper is looking at developments on the U.S-China trade front with optimism.”

    Copper, used by investors as a gauge of economic health, was down 0.3% at $5,908 a tonne, having earlier touched a session high of $5,927.

    STOCKS: Zinc inventories in London Metal Exchange-registered warehouses are at 57,775 tonnes. They fell to 50,425 tonnes in April, the lowest since the 1990s. MZN-STOCKS

    Also supporting prices are cancelled warrants – metal earmarked for delivery and so no longer available to the market – at nearly 43%. MZNSTX-TOTAL.

    SPREADS: Concern about the availability of zinc on the LME market has created a premium of $44 a tonne for the cash over the three-month contract, close to the $50 a tonne seen in September CMZN0-3.

    BALANCE: Global zinc demand is estimated at around 14 million tonnes this year. Some analysts expect an annual deficit of around 200,000 tonnes.

    “The slight resurgence of tightness in the ex-China zinc market is likely temporary and any macro-related risk-on rally is likely to present another opportunity to sell in to strength,” Citi analysts said in a note.

    “For producers who missed an earlier rally cry to hedge, the next 3-6 months are likely to provide (another) chance.”

    TECHNICALS: Zinc prices face heavy resistance at $2,545, where the 200-day moving average currently sits, followed by $2,575, the 50% Fibonacci retracement level of the April to September slide.

    TRADE: U.S. and Chinese officials are “close to finalising” some parts of a trade agreement after high-level telephone discussions on Friday, the U.S. Trade Representative’s office and China’s Commerce Ministry said.

    “A stuttering global industrial economy continues to weigh on many commodity prices,” analysts at BMO Capital Markets said in a note. “While government policy is increasingly supportive, weak manufacturing orders mean 2020 demand expectations have been lowered once more.”

    INDONESIA: Nickel briefly reversed early losses after Indonesia’s nickel miners agreed to stop nickel ore exports immediately. Last month Jakarta brought forward a ban on shipments to January 2020 from 2022.

    It was down 0.8% at $16,640.

    PRICES: Aluminium was up 0.5% at $1,736 a tonne, while lead rose 0.6% to $2,236 and tin gained 0.3% to $16,725. (Reporting by Pratima Desai; Editing by Kirsten Donovan and Jan Harvey)

    Zinc and lead are both in short supply on the London Metal Exchange (LME).

    Headline zinc stocks of 53,875 tonnes are back at April levels, while “live” tonnage of 27,800 tonnes is the lowest it’s been in at least 20 years.

    Lead stocks are a little higher at 70,075 tonnes but have failed significantly to rebuild from July’s decade low of 55,475 tonnes.

    Unsurprisingly, both LME contracts are experiencing time-spread tightness.

    Zinc closed last week with cash metal commanding a $61-per tonne premium over metal for three-month delivery. Lead’s front-month curve structure is also in backwardation to the tune of $7.25 at Friday’s close.

    The sister metals have defied expectations of a shift into supply surplus throughout this year and they continue to do so.

    Even though both are seeing flagging demand, particularly from the automotive sector, supply bottlenecks have kept each market in supply deficit this year, according to the International Lead and Zinc Study Group (ILZSG).


    Indeed, ILZSG has just widened its expected 2019 zinc supply deficit to 178,000 tonnes from an assessment of 121,000 tonnes at the Group’s last meeting in May.

    That’s despite a downgrade to demand, which is now expected to decline by 0.1%, largely due to weakness in Europe, where usage is forecast to contract by 3.7% this year.

    Supply, though, just hasn’t come through in the way anticipated at the start of the year.

    Back in May the Group was looking for world mine production to surge by 6.2% this year, laying the ground for a 3.6% increase in refined metal output.

    Those forecasts have been slashed to just 2.0% and 2.5% respectively.

    Mine supply has increased as expected in Australia, but the impact has been offset by sharp declines of 6.4% in Peru and 7.8% in the United States.

    The anticipated rise in refined production has only really played out in China, where output is expected to lift by 7.1% this year.

    Outside of China, smelter hits have caused a bottleneck in the supply chain.

    European production will fall by 3.5% this year due to lower output at Nyrstar’s plants in France and the Netherlands, while the permanent closure of the 100,000-tonne per year Vladikavkaz smelter in Russia has blown a lasting hole in regional capacity.

    A string of smaller smelter outages will also depress output in Australia, India and Canada, the ILZSG said.


    The Group’s revisions to its May forecasts for the lead market are even more dramatic.

    The global refined market was expected to register a supply-usage surplus of 71,000 tonnes this year but that has just been revised to a shortfall of 46,000 tonnes.

    Lead too is expected to see a fall in demand this year, led by a 1.1% decline in China, which is seeing weakness in automotive production and “increased use of lithium-ion batteries in both the motorcycle and e-bike sectors and for Uninterruptable Power Supply (UPS) stationary backup systems,” according to ILZSG.

    However, lead supply has misfired even more than zinc with the Group now forecasting global refined production to contract by 0.3% this year, compared with an expectation in May that it would grow by 2.5%.

    The main culprit is Nyrstar’s Port Pirie lead smelter in Australia. The plant went down in May and following a restart was out of action again in August.

    Canada’s Belledune smelter has also seen production hit by industrial action, while Glencore’s permanent closure of its Palpala plant in Argentina last year has served to reduce Latin American treatment capacity.


    While events this year confounded a market narrative of zinc and lead transitioning from supply deficit to surplus, ILZSG’s forecasts suggest the shift has simply been delayed not cancelled.

    The Group is forecasting a zinc market surplus of 192,000 tonnes and a lead market surplus of 55,000 tonnes in 2020.

    This year’s demand weakness is expected to fade with expectations that zinc usage will increase by 0.9% and lead by 0.8% next year.

    But the delayed supply surge is expected finally to arrive with full impact next year.

    Zinc mined and refined supply are forecast to rise by 4.7% and 3.7% respectively with lead mine supply up 3.9% and refined output up 1.7%.

    This year’s smelter bottlenecks are expected largely to clear next year, although Port Pirie’s technical travails remain a key variable for lead’s supply chain.


    Both zinc and lead prices have spent much of 2019 on the back foot with the market trading the elusive surplus story.

    It’s only in the last couple of weeks that there’s been something of a collective double-take, primarily because visible exchange stocks have shown no sign of rebuilding.

    LME three-month lead last week hit a year-to-date high of $2,265 per tonne, although it has since been knocked back to a current $2,160.

    Zinc, meanwhile, has regained a toe-hold above the $2,500-per tonne level for the first time since June, currently trading around $2,530.

    Further gains seem unlikely given the broader negativity in the industrial metals complex with traders eyeing the bearish combination of spreading factory weakness and the continued absence of any breakthrough in the Sino-U.S. trade dispute.

    Rather, the tensions between expectation and reality are likely to continue playing out in the nearby time-spreads.

    Zinc is particularly in focus, given the extremely low levels of LME on-warrant stocks, but a dominant position in the LME lead contract equivalent to over 90% of available inventory is also worth a keeping a close eye on. <0#LME-WHC>

    It’s clear that consecutive years of deficit in both markets have severely depleted inventory, both on and off exchange, and that it will take time for the supply chain to refill.

    The time-line for a return to surplus has already proved more elastic than anyone expected at the start of 2019. The latest numbers from ILZSG should serve as a warning that it could be a while yet before the transition becomes tangible in the form of rising exchange stocks.

    Hidden zinc inventories are helping to keep stocks low in exchange-approved warehouses and prop up prices, but increasing production is due to hit the market in coming months.

    Zinc CMZN3, mainly used for galvanizing steel, has been the best performer on the London Metal Exchange over the past three months, gaining 4.7% versus a 0.3% rise for copper CMCU3.

    Prices have been supported as bottlenecks at smelters this year lasted longer than expected, putting a lid on refined output even as mine production has been growing.

    This has been reflected in shortages outside of top consumer China and a slide in inventories in LME-approved warehouses MZNSTX-TOTAL, which have more than halved so far this year to 53,250 tonnes, the lowest in two decades.

    Stocks in Shanghai Futures Exchange depots ZN-STX-SGH have declined by nearly half to 63,797 tonnes since mid-March.

    “We’re in this lingering state of tightness,” said Oliver Nugent, analyst at Citigroup in London.

    While smelters are still struggling with mediocre production outside of China, within the country output of refined zinc has been rebounding in recent months.

    “There’s a real disparity. There is a loosening story that is already underway in China. It’s a timing question of how long that takes to knock on to ex-China and the LME,” Nugent said.

    Refined zinc output in top metals consumer China surged 19% year-on-year in September as smelter bottlenecks have eased.

    Smelters have also been taking advantage of strong zinc treatment and refining charges, which miners pay to smelters to process their ore concentrates into metal. Spot levels have soared this year AM-TC50-ZNCONto the highest in over a decade.

    Higher Chinese production is not showing up in exchange warehouses partly because the additional output is being stashed away in private storage facilities, analysts and traders said.

    “We’ve been told that the Chinese smelters are producing as much as they can and basically it’s going into off-warrant, private warehouse financing,” said Sucden Financial senior broker Liz Grant.

    Warrants are ownership documents for metals stored in exchange warehouses.

    “The two largest traders of zinc in the world also have an interest in zinc prices not being on the floor…It would make sense that if they hold stock for any reason, they don’t make it visible,” Macquarie analyst Vivienne Lloyd told a briefing.

    Macquarie estimates that at the end of October there were 940,000 tonnes of “invisible” zinc stocks, consisting of inventories in non-exchange warehouses and in the supply chain.

    That overwhelms the 117,047 tonnes in LME and ShFE warehouses.

    Strong supplies within China have caused the physical zinc premium there to slide.

    Rising output at new mines will eventually find its way to the market and pressure benchmark prices, according to consultancy CRU.

    Vanessa Davidson, director of base metals research at CRU, told a presentation that about 900,000 tonnes of zinc were due to come online next year, boosting mine production by 7.3% to 13.37 million tonnes.

    “We see that the increase in supply next year is both extreme and significant… prices will need to fall significantly from where they are today in order to encourage more price-sensitive cutbacks of production,” Davidson said.

    CRU forecasts zinc to average $2,180 a ton next year, down 13% from the current level of $2,495, while Macquarie’s Lloyd sees prices bottoming out at $2,000-$2,100 going into 2020.

    Zinc sank to its lowest in nearly three months on Monday and other industrial metals also posted losses as investors doubted that upbeat manufacturing data in China pointed to an economic recovery.

    Factory activity in top metals consumer China expanded at the fastest rate in three years, a private sector survey showed on Monday, reinforcing strong government data released on Saturday.

    But some analysts said the buoyant showing, especially for the Caixin/Markit manufacturing Purchasing Managers’ Index, may be influenced by one-off factors.

    “A lot of people are doubting the veracity of the Caixin one. That’s a pretty dramatic turnaround, so there’s a degree of scepticism,” said Colin Hamilton, director of commodities research at BMO Capital in London.

    “Normally the official numbers are above the Caixin one and for two or three months we’ve had it the other way around.”

    There was also worry that the good data might undermine a U.S.-China trade deal.

    “The problem America now faces is that China looks to be returning to growth despite the tariffs, which gives the upper hand to China,” Malcolm Freeman at Kingdom Futures said in a note.

    “This may mean no trade deals are signed this year, which will be perceived as bearish.”

    Benchmark zinc prices on the London Metal Exchange fell 1.3% to $2,243 a tonne in final open-outcry trading after touching $2,237, the lowest since Sept. 4.

    * ZINC POSITION: The net speculative short position of LME zinc has risen to 14.7% of open interest, a level not seen since late September, Alastair Munro at broker Marex Spectron said in a note.

    * NORSK HYDRO CUT: Norsk Hydro, one of the world’s biggest aluminium producers, plans to cut production by 20% at its majority-owned Slovalco plant in Slovakia, citing a weakening market.

    “With a demand rebound unlikely near-term, supply cuts in excess of 1 million tonnes per annum are needed to prevent a drop to our bear case of $1,657/t in early 2020,” said Morgan Stanley analysts in a note.

    LME aluminium rose 1.1% to close at $1,790 a tonne.

    * ALUMINIUM STOCKS: The weak aluminium market has led to rising inventories. On-warrant LME stocks MALSTX-TOTAL, material not earmarked for delivery, reached 1,114,650 tonnes, the highest since Feb. 22, data showed on Monday.

    They have shot up 42% over the past three weeks.

    * COPPER CONTRACT: China’s Shanghai International Energy Exchange (INE) is preparing to launch a copper futures contract within the next year that will be open to domestic and foreign investors, according to two sources familiar with the plans.

    * PRICES: LME three-month copper edged up 0.3% to end at $5,883 a tonne, lead dropped 1.6% to $1,906, the weakest since July 9, and tin slipped 0.03% to $16,490.

    Nickel gained 0.4% to finish at $13,720, rebounding after touching $13,610, the weakest since July 16. (Reporting by Eric Onstad Editing by Christina Fincher and Jan Harvey)

    Zinc prices fell in London and Shanghai in early Asian trade on Tuesday, as a rise in Chinese
    inventories stoked demand concerns and led investors to take up short positions on the metal used to galvanise steel.
        Social, or non-exchange, zinc stocks in China rose by more than 5,000 tonnes as of Dec. 23, Chinese brokerage Jinrui
    Futures said in a note, relieving some of the pressure on supply from low exchange inventories.     
        * ZINC: Three-month zinc on the London Metal Exchange fell
    0.2% to $2,285.50 as of 0233 GMT, after ending down 2.1% in the
    previous session. The most traded February zinc contract on the
    Shanghai Futures Exchange slumped 1.5% to 17,850 yuan 
    ($2,545.20) a tonne.
        * TCs: Treatment charges for zinc concentrate in China
    AM-TC50-ZNCON have hit as high as $310 a tonne this month, the
    highest since June 2008 amid plentiful ore supply, incentivising
    smelters to keep producing metal.
        * COPPER: LME copper edged down 0.2% to $6,177.50 a
    tonne in quiet pre-holiday trade, while Shanghai copper
    inched up 0.1% to 49,080 yuan a tonne. 
        * SCRAP: China's environment ministry has issued import
    quotas for 270,885 tonnes of high-grade copper scrap and 275,465
    tonnes of aluminium scrap, the first batch for use in 2020.
    China's scrap metal imports in November rose by 6.3% from the
    previous month to 170,000 tonnes. [ 
        * RARE EARTHS: Rare earths miner UCore Rare Metals Inc
     and manufacturer Materion Corp said on Monday
    they will form a consortium to jointly apply for U.S. military
    funding of a rare earths processing plant.
        * HOLIDAY: The London Metal Exchange will be closed on
    Wednesday and Thursday for the Christmas holiday.
        * For the top stories in metals and other news, click       
        MARKETS NEWS    
        * The dollar traded little changed while equity markets
    added to a year-end rally, with both a gauge of stock
    performance worldwide and Wall Street hitting new highs amid
    renewed optimism over U.S.-China trade and growth prospects.

    Zinc prices rose to two-month highs on Monday after a break of key technical levels triggered a flurry of buying and as the market worried about historically low inventories.

    Benchmark zinc on the London Metal Exchange (LME) ended 0.6% up at $2,444 a tonne.

    Prices of the metal used to galvanise steel earlier touched $2,448, the highest since Nov. 13 and a gain of more than 10% since early December.

    “The 200-day moving average around $2,440 gave way and started the short-covering,” one zinc trader said, referring to the closing of bets on lower prices. “It does pave the way for $2,500-$2,550, but that may need a lot more momentum.”

    TECHNICALS: Strong resistance is seen at $2,480, a Fibonacci retracement level, while any reversal of the uptrend will only see support kick in at about $2,350, where the 21, 50 and 100-day moving averages are converging.

    STOCKS: Stocks of zinc in LME-approved warehouses are close to 20-year lows at about 50,000 tonnes, having been on a downtrend since October 2015.

    Visible inventories – including those on the LME, in warehouses monitored by the Shanghai Futures Exchange and those held by producers – are estimated at about 1.1 million tonnes.

    That number is also very low, equating to about 30 days of global consumption rather than normal 50 days.

    Global consumption is estimated at 14 million tonnes this year.

    DEMAND: The China Iron and Steel Association recently forecast Chinese steel demand of about 890 million tonnes for 2020, up 2% from 2019.

    SPREADS: Worries about nearby availability of zinc on the LME market have pushed cash metal to a premium of nearly $20 a tonne over the three-month contract, having been at a discount in December.

    CHINA: Prices of industrial metals overall were supported by expectations of stronger demand from top consumer China, where data shows growth and demand stabilising, and optimism about improving U.S-China trade relations.

    Chinese industrial output in December rose 6.9% from a year earlier, its strongest growth in nine months and above an expected 5.9%. Fixed-asset investment rose 5.4% for the full year, but growth had plumbed record lows in the autumn.

    “We see scope for stabilisation in China and a de-escalation of the trade dispute,” Bank of America Merrill Lynch analysts said in a note, adding that this and a lack of mine supply growth is likely to support copper.

    OTHER METALS: Copper closed 0.2% down at $6,259 a tonne, aluminium was up 0.4% at $1,812, lead lost 0.8% to $1,961, tin gained 0.2% to $17,850 and nickel added 0.8% to $14,025. (Reporting by Pratima Desai Editing by Kirsten Donovan and David Goodman)

    Zinc prices lurched on Monday to their lowest since July 2016 after a surge in inventories and worries over demand in China as cases of the coronavirus grow in number.

    Zinc stocks in warehouses certified by the London Metal Exchange (LME) hit their lowest in nearly three decades last week, but analysts said this was deceptive because a lot of metal was being held in other depots.

    Annual contract negotiations had constrained metal flows but those have now been concluded, said Oliver Nugent, an analyst at Citigroup in London.

    “Metal that was being held back before contract negotiations were finished is now coming on the market and, combining with weakness in Chinese import orders, that’s putting pressure on LME prices,” he said.

    Three-month LME zinc slipped 0.5% to $2,135 a tonne in final open-outcry trading after hitting $2,117, its lowest since July 8, 2016.

    With the coronavirus death toll above 900, the World Health Organization said the number of cases outside China could be “the tip of the iceberg”.

    Citibank has become more cautious about the impact of the virus on demand in China, the world top consumer of metals, Nugent said.

    “If you tally up the provinces that so far show the largest amount of cases, the potential demand hit is really quite severe. We calculate that the seven worst provinces have about 40% of GDP, 40% of property new starts and 70% of air conditioner production.”

    Air conditioning units require large amounts of copper.

    * ZINC STOCKS: LME zinc inventories MZNSTX-TOTAL shot up on Monday to 71,150 tonnes, the highest since August last year, bringing the gains over the past week to 43%.

    Stocks in warehouses monitored by the Shanghai Futures Exchange nearly doubled to 97,922 tonnes over two weeks, it said on Friday.

    * ZINC SPREAD: The discount of cash LME zinc to the three-month contract CMZN0-3 rose to $4.50 a tonne, its highest since last August and compared with a premium of $23.75 about three weeks ago. This indicates a rise in supplies of metal in the LME system.

    * COPPER: LME copper edged up 0.1% to finish at $5,667 a tonne, though Nugent expects further losses. Citibank forecasts that copper will touch a low of $5,300 during the first quarter before recovering later in the year.

    * COPPER CHARGES: Spot charges for processing copper concentrate in China have risen to their highest in eight months owing to the coronavirus outbreak.

    * LEAD: LME lead shed 1.2% to close at $1,796, its lowest since June 3 last year.

    The net speculative short position of LME lead has grown to 3.4% of open interest, though this is modest compared with last year’s peak short of 27%, Alastair Munro at broker Marex Spectron said in a note.

    * PRICES: LME aluminium dropped 1.4% to close at $1,702 a tonne, nickel gained 0.9% to $12,885 and tin was up 0.9% at $16,325.

    Henan Yuguang Gold and Lead , one of China’s biggest lead and zinc producers, has cut zinc output by 50% amid the coronavirus outbreak in the country, a company executive said on Thursday.

    Yuguang on Wednesday closed half of its 300,000 tonnes per year zinc smelting capacity, mostly because the company is unable to shift high inventories of byproduct sulphuric acid, sales director Li Xiaodong said.

    Shrinking demand for zinc, used to galvanise steel, was another factor behind the move, said Li, who added that Yuguang’s lead and copper production was still “holding up.”

    He said they was no need for the smelter to declare force majeure on its supply contracts. Companies invoke force majeure when they cannot meet their contractual obligations because of circumstances beyond their control.

    Yuguang is based in central China’s Henan province, which borders virus epicentre Hubei to the north. It has annual smelting capacity of 400,000 tonnes of lead and 150,000 tonnes of copper in the city of Jiyuan.

    Smelters in China, the world’s top metals consumer, have been unable to sell off their high sulphuric acid inventories due to transport curbs imposed to contain the spread of the virus. Widespread factory closures have also reduced demand for sulphuric acid.

    Prices for zinc were up 0.5% on the London Metal Exchange at $2,158 a tonne as of 0652 GMT but are down 5% so far in 2020 on concerns the virus will sharply reduce economic growth and hurt demand for industrial metals.

    * Spot treatment charges (TCs) for zinc concentrate AM-TC50-ZNCON in China have fallen for the first time in almost two years, data from industry pricing and information provider Asian Metal shows, indicating a slight tightening of supply

    * The charges – paid by miners to smelters to process zinc concentrate into refined metal – fell to $300 a tonne on March 2, down from an 11-year high of $305 a tonne

    * The last time TCs dropped was on March 12, 2018, to just $15 a tonne. They have risen since then as abundant mine supply overwhelmed limited zinc smelting capacity

    * Canadian miner Teck Resources and smelter Korea Zinc Inc have yet to announce a settlement on a TC benchmark for 2020

    * China is the world’s biggest consumer of zinc, a metal used to galvanise steel; its mines are under cost pressure at current zinc prices, research house Antaike said on Monday, raising the prospect of production cuts

    * Three-month zinc on the London Metal Exchange sank to $1,970 a tonne on Friday, its lowest since June 2016, as weak demand amid the coronavirus outbreak pushes inventories higher. However, prices have rebounded somewhat since then and risen 0.7% to $2,038 on Tuesday.

    The spread of the coronavirus has hit the entire London Metal Exchange (LME) base metals complex as fears grow over the demand shock travelling out from China.

    Zinc has been hit the hardest of all.

    At a current $2,010 per tonne, the London three-month zinc price is down by 13% on the start of January, the weakest performance in a weak pack.

    Zinc touched a near four-year low of $1,970 on Feb. 28 and has struggled to stage a convincing recovery over the course of this week.

    Funds have been piling into zinc on the short side. LME broker Marex Spectron estimates net speculative short positioning reached 32% of LME open interest on Tuesday, the largest collective bear bet since November 2015, when it peaked at 38% of open interest.

    Meanwhile, in China the market “is running record shorts” on the Shanghai Futures Exchange (ShFE) zinc contract, Marex said.

    Zinc’s problem is that the coronavirus has darkened further an already bearish outlook.


    Stocks of zinc registered with the ShFE have mushroomed from 28,054 tonnes at the end of December to 162,402 tonnes.

    Inventory build over China’s new year holiday period is normal. The scale of this year’s build isn’t normal. It already exceeds the peak seasonal increases of 104,000 tonnes in 2019 and 91,000 tonnes in 2018.

    Quarantine and restrictions on travel have worked to slow the post-holiday return to work, disrupting the zinc value chain in China.

    Moreover, zinc is particularly exposed to the economic impact of the virus via its use in galvanised steel in the automotive and construction sectors.

    China’s giant automotive market was already struggling before the coronavirus. Now it is collapsing.

    Passenger car retail sales in China fell 80% in February because of the coronavirus epidemic, according to the China Passenger Car Association.

    Globalised automotive supply chains mean that this is not just a Chinese problem but could affect other countries’ automotive output.

    An UNCTAD report this week cited carmaker Honda as saying it would reduce vehicle output at two of its domestic plants in Japan’s Saitama Prefecture for a week or so in March due to concerns about parts supply from China.

    The United Nations agency estimates a shortage of Chinese components caused a $50 billion fall in global exports last month, with the automotive industry one of the most affected.

    Property sales in China have also collapsed, which may affect the sector’s ability to maintain construction and completion rates. That hits zinc due to its use in white household goods.

    Some mitigation to this demand shock has come from disruption to China’s giant zinc production sector.

    Henan Yuguang Gold and Lead, one of China’s biggest zinc and lead producers, has cut zinc output by 50%, or around 150,000 tonnes per year, because it has been unable to sell the sulphuric acid generated as a by-product of the smelting process.

    Others have reduced operating rates or brought forward planned maintenance work to offset logjammed logistics affecting both their raw material and product chains.

    The build in Shanghai stocks would probably be even more massive were it not for this supply-side offset.


    Unfortunately for the zinc price, China’s producers are likely to return to normal operations before the downstream sector, meaning further increases in both visible exchange and off-market inventory in the country.

    The big commodity banks have had it in for zinc for many months basis a storyline of a market transitioning from a period of chronic mine supply shortfall to one of surplus.

    This process has already played out in the raw materials segment of the zinc supply chain, with smelters enjoying treatment charges of over $300 per tonne in a saturated zinc concentrates market.

    What the bears have been waiting for is tangible evidence that the raw materials surplus is travelling down the value chain to become metal surplus.

    With non-Chinese smelter capacity constrained, all eyes were on Chinese producers to start lifting run-rates, which they did aggressively over the back end of 2019.

    Inventory build in China was expected this year, but the coronavirus demand shock is now accelerating the process – witness the ballooning stocks on the Shanghai exchange.

    So far, at least, the surplus is stuck in China behind the country’s export tariffs.

    The last chapter of zinc’s bear story, the move to visible surplus outside of China, is still to play out.


    There has been only a modest rise in stocks of zinc held by the LME.

    A flurry of deliveries onto LME warrant in February lifted headline stocks from 51,200 tonnes at the start of the year to the 75,000-tonne level.

    But since then stocks have plateaued, even while available tonnage has edged lower due to a steady trickle of cancellations as metal is taken off-warrant prior to physical load-out.

    These are still ultra-low exchange stock levels by any historical yardstick.

    But the LME zinc spread structure has loosened dramatically over the last couple of weeks, the benchmark cash-to-three months spread CMZN0-3 flipping from a backwardation of over $20 in January to a contango of $19.50 per tonne as of Thursday’s closing valuations.

    The spread is signalling there is ample metal available, even if it is not evident from the exchange’s own registered stock levels.

    All the funds betting on lower zinc prices better hope this is a true signal rather than a hall-of-mirrors LME stocks reflection.

    They have already paid the price several times for getting their bear timing wrong in the zinc market, with spreads flaring out as shorts rolled positions in the confines of limited LME stocks availability.

    There are a lot of shorts in London. There is still very low stocks cover. The surplus is building in China, but until it becomes evident elsewhere, bears could yet be caught out again.

    Vedanta Zinc International, a unit of diversified miner Vedanta Resources, said on Monday it would suspend operations at its Skorpion Zinc mine and refinery in Namibia by the end of April.

    Vedanta said the decision to place Skorpion Zinc on care and maintenance, which means operations stop but are kept in a condition to resume in future, was taken because of pit failures that had paralysed a significant portion of the open-cast mine.

    The failures, the latest of which occurred in January, resulted in an ore gap of more than 10 months, the company said, adding that further technical studies had indicated the existence of similar failures at depth.

    Roughly 1,500 employees in the southern African country will be affected by the suspension in operations.

    “The decision has been taken to cease all mining operations while studies continue to look at feasible ways to make the pit safe for mining options, which would allow for the extraction of the remainder of the accessible ore,” the statement said.

    Vedanta said last year it would shut Skorpion Zinc for four months.

    Skorpion Zinc expected to produce 90,000 tonnes of the metal in 2018, rising to around 130,000 tonnes in 2020, according to Vedanta’s website. The global zinc market is around 14 million tonnes a year.

    Spot treatment charges (TCs) for zinc concentrate in China have fallen to a one-year low on tightening supply as mines around the world shut amid government-enacted measures to contain the coronavirus pandemic.

    The charges AM-TC50-ZNCON, paid by zinc miners to smelters to process concentrate into refined metal on short-term contracts, slipped to $255 a tonne on Tuesday, the lowest since April 16, 2019, according to industry pricing and information provider Asian Metal.

    TCs fall when mine supply tightens and smelters have to compete harder to get concentrate to process. The charges rise when supply is abundant and mines have to offer more to get smelters to take their material.

    “The concentrate supply is tight now,” said CRU Group analyst Dina Yu. “The rapid decline of TCs reflected the worries for the concentrate supply outside of China.”

    The Antamina zinc mine in Peru – one of the largest in the world and co-owned by BHP Group, Glencore PLC and Teck Resources – is halting operations for about two weeks.

    Production at Nexa Resources’ Cerro Lindo, Atacocha and El Porvenir mines in Peru were also suspended last month.

    Peru, a major zinc producer and one of the top suppliers to Chinese smelters, has been in lockdown since March to contain the virus.

    Current spot TCs are down 16% from an 11-year high of $305 at the end of February, and 15% below the annual TC benchmark reported by Fastmarkets of $299.75 a tonne for 2020 agreed by Korea Zinc and Teck Resources.

    A China-based trader said he had heard of recent spot deals below $200 a tonne.

    The lower concentrate supply could lead to 160,000-170,000 tonnes of annual refined zinc output being cut in China from now until the end of the year, or about 2.5%-2.7% of China’s 2020 projected output, CRU’s Yu said.

    Benchmark three-month zinc prices on the London Metal Exchange have risen some 15% since March 19, when the contract hit a more than four-year low of $1,674.85 a tonne.

    A Singapore-based metal trader said he had noticed a pick-up in demand from the infrastructure sector in China.

    Another base metals trader with a trading house said the concentrate shortage should only give zinc prices a temporary lift due to a subdued long-term demand outlook.

    Yu said the impact on supply is less than on the demand side in China’s overseas markets.

    “The increase in demand from (China’s) infrastructure projects may be offset by the decline in the worsening export markets,” she said.

    Collapsing demand for zinc caused by the novel coronavirus will swamp supply cuts from major producers Peru and India this year and leave the market with a massive surplus that will weigh on prices of the material used to galvanise steel.

    The coronavirus, which has infected nearly 2 million people globally, has roiled global markets and hit demand from zinc-intensive industries such as construction and transport.

    This has pushed benchmark zinc prices down about 18% this year to around $1,920 per tonne.

    “With zinc you have a big demand problem and unless you see far more cuts in supply we are still expecting a healthy surplus this year,” said Colin Hamilton, analyst at BMO Capital Markets.

    Hamilton said zinc was currently at levels that would likely force more supply out of the market.

    BMO estimates global zinc demand will fall by about 6% this year compared to a roughly flat year in 2019. This assumes a recovery in the global economy in the second half of the year, Hamilton said.

    It forecasts a 335,000-tonne surplus in the 14-million-tonne zinc market this year, up from a previous estimate of 150,000 tonnes. The new forecast is in line with expectations in a Reuters poll.

    Governments around the world have imposed lockdowns and closed non-essential businesses such as mining to slow the spread of the coronavirus.

    Peru and Mexico, which together account for 16% of global zinc mine supply, have seen mines including BHP and Teck Resource’s Antamina and Newmont-Goldcorp’s Penasquito mines temporarily close.

    Nexa Resources also shuttered three zinc mines in Peru, while Sumitomo’s San Cristobal in Bolivia is closed.

    Hindustan Zinc’s operations in India, which produces about a million tonnes a year, are ramping up operations after shuttering for a few weeks, a company spokesman said.

    Tighter mine supply has pushed spot treatment charges, which are paid by miners to smelters to turn ore into metal, in China to a one-year low of $255 a tonne from levels near $300 a tonne earlier this year AM-TC50-ZNCON.

    A shortage of concentrates from local Chinese mines is also putting pressure on smelter margins, raising the chances of output cuts, said CRU senior base metals analyst Paul Wiggers De Vries.

    Tumbling zinc prices have put miners’ margins under pressure.

    Citi estimates that about 25% of zinc miners are loss-making at current prices and expect about 800,000 tonnes is at risk of closure from the second half of this year.

    “At these levels, either you are going to see a big player make proactive cuts to supply because of margins or you are going to see smaller miners forced out,” said Citi analyst Oliver Nugent.

    On-exchange inventories point to a well-supplied market, with stocks in China surging in middle of March to over 169,000 tonnes before easing to about 158,000 tonnes last week.

    “So far, hopes for zinc are pinned on infrastructure investment, but demand growth will still be outpaced by supply this year, leading to a market in surplus,” said ING analyst Wenyu Yao.

    Government restrictions to slow the spread of the coronavirus outbreak have forced the closure of zinc and lead operations, mainly in South America, a major producer.

    The shutdowns have raised expectations for a larger zinc surplus this year. Lead, mined alongside zinc which is used to galvanise steel, has also been hit by smelter shut downs.

    A Reuters survey in April pegged this year’s zinc surplus at 335,000 tonnes, three times the 108,000-tonne excess expected in a January survey, while Refinitiv estimates the pandemic will reduce previously expected output by around 2%.

    Below is a list of closures, suspensions and disruptions to zinc and lead operations due to the coronavirus outbreak.

    April 14 – Newmont shuts its Peñasquito mine in Mexico. The operation, which primarily mines gold and silver, produced about 84,000 tonnes of zinc and 48,987 tonnes of lead last year.

    April 13 – BHP and Teck Resources’ Antamina mine in Peru shuts for two weeks. The operation, which produces zinc as a byproduct, was expected to churn out about 500,000 tonnes of zinc this year.

    On Wednesday, the mine said a date for a restart was uncertain.

    March 26 – Glencore shuts its Matagami operation in Canada and says it could reopen before May 4. The operation produced 43,800 tonnes of zinc in 2019.

    March 26 – Vedanta places its South African zinc operations including Gamsberg and Black Mountain mine under care and maintenance.

    March 30 – Vedanta announces plans to shut its Skorpion zinc mine and refinery in Namibia by the end of April due to operational issues.

    All three operations were set to produce at least 280,000 tonnes of zinc metal in the company’s financial year ending in March 2020.

    March 26 – Recylex shuts its Weser-Metall lead production plant in Germany. It produces 130,000 tonnes of lead annually.

    March 26 – Sumitomo Corporation suspends operations at San Cristobal mine in Bolivia.

    March 24 – Hindustan Zinc Ltd halts all operations in India for a week.

    March 18 – Nexa Resources temporarily closes its Cerro Lindo, Atacocha and El Porvenir mines in Peru. The mines produced a combined 198,000 tonnes of zinc and 45,000 tonnes of lead in 2019.

    Feb 13 – Henan Yuguang Gold and Lead cuts output at its 300,000 tonne per year zinc smelter by 50%.

    German zinc producer Metallwerk Dinslaken (MWD) said on Tuesday it will close permanently because of the economic fallout of the coronavirus crisis.

    The company produces about 25,000 tonnes annually of secondary zinc and zinc alloys from scrap at its plant in Dinslaken and some 41 jobs will be lost.

    The coronavirus shutdowns have greatly reduced availability of zinc scrap while zinc customers, especially in Italy, have cut zinc purchases, said a spokesman.

    “We had to react because both raw material supplies and demand have come to a stop because of the coronavirus crisis,” he said.

    Existing contracts will be completed and the company then shut down, he said.

    China’s coal mining hub of Shanxi province aims to halve its coal-washing capacity to 1.8 billion tonnes a year and reduce the number of plants involved in the process to 1,200 by end-September, the area’s energy administration said on Thursday.

    Shanxi pledged last year to reduce excessive capacity in the coal-washing industry and to shut plants that failed to meet tougher environmental standards. The washing process removes sulphur and other impurities from coal with water and chemicals before it is burned in power plants.

    Shanxi, China’s second-biggest coal-mining province by output, had 2,704 coal-washing and preparation plants with a total annual capacity of 3.84 billion tonnes at end-2019.

    At least 80% of the coal mined in Shanxi will have to be washed before use by the end of 2020 to improve coal quality and reduce toxic emissions, the provincial energy administration said in a statement.

    The province also said it would close small-sized washing plants with capacities of less than 1.2 million tonnes a year by the end of this year.

    The Shanxi energy administration urged city governments to tighten their scrutiny of environmental certificates at the washing companies that are allowed to operate.

    “Less than a third of the coal-washing companies that local authorities have given green lights have actually met the environmental standards and acquire legal land-use rights,” said the energy administration in its statement.

    China produced 3.75 billion tonnes of coal in 2019, with about a quarter of that coming from Shanxi province.

    As the sun sank over a vast opencast coal mine in eastern Serbia earlier this month, a small crane eased the front half of a Roman ship from the steep sides of the pit.

    An excavator cutting through the coal rich soil had pulled out some muddy timber weeks before, but coronavirus restrictions had meant the retrieval had to wait.

    The ship was part of Viminacium, a sprawling Roman city of 45,000 people with a hippodrome, fortifications, a forum, palace, temples, amphitheatre, aqueducts, baths and workshops.

    Lead archaeologist Miomir Korac said the vessel dated from the 3rd century AD when Viminacium was the capital of the Roman province of Moesia Superior and near a tributary of the Danube river.

    “A Roman (river) fleet was based here to defend this region from barbarian invasions,” he told Reuters. “Such findings of Roman ships are really rare, especially in such a good condition where one could see how the boat was built.”

    The ship originally measured 19 meters. It had a flat bottom, six pairs of oars and fittings for a triangular sail. The nine-metre front section had thick wooden sides and was discovered along with the remains of two smaller boats.

    It will eventually go on display with some of tens of thousands of other artefacts unearthed from the site near the town of Kostolac, some 70 km (45 miles) east of Belgrade.

    They include golden tiles, jade sculptures, mosaics and frescos, along with 14,000 tombs and the remains of three mammoths. The archaeologists are now working on what they believe to be the headquarters of a Roman general.

    Excavations of Viminacium have been going on since 1882, but the archaeologists estimate that they have only covered 4% of the site, which they say is 450 hectares – bigger than New York’s Central Park – and rare in not being buried under a modern city.

    Coal India’s sales fell 23.3% in May as utilities refrained from purchases amid record stockpiles and tepid demand because of a nationwide lockdown to curb the spread of the coronavirus.

    Offtake by customers, such as power generators, fell to 39.95 million tonnes in May, down 23.3% year on year, though that represented a slight improvement from the 25.5% fall in April. May production fell 11.3% to 41.43 million tonnes, compared with a 10.9% fall the previous month.

    More than three quarters of the electricity generated in India is derived from coal, with Coal India – the world’s largest coal miner – accounting for more than four fifths of India’s domestic production.

    Power generation fell 14.3% in May and demand for the current financial year is expected to fall for the first time in at least 36 years.

    India has also ramped up electricity generation from non-fossil fuel sources at the expense of coal-fired generation over the past two months, further dampening coal demand.

    State-run Coal India and the federal coal ministry have been pushing electricity generators to keep buying coal even though utilities’ stocks and miners’ inventories are at record highs.

    China’s coal imports in May fell nearly 20% compared with a year earlier even as demand recovered at power plants and industrial users, customs data showed on Sunday.

    Analysts and industrial participants had expected China to tighten coal import rules in the second half of 2020 to support domestic miners, and imports starting in July may drop by as much as a quarter from the corresponding 2019 period.

    Sunday’s data showed the country imported 22.06 million tonnes of coal last month, according to the General Administration of Customs released on Sunday. That compares with 30.95 million tonnes in April and 27.47 million tonnes in May 2019.

    In the first five months of this year, China brought in 148.71 million tonnes of the fuel, up 16.8% from the same period last year.

    Electricity consumption has been rising among both industrial and residential users as firms are ramping up production amid the economic recovery after the loosening of restrictions to curb the coronavirus outbreak, while households started to crank up their air conditioning because of warmer weather.

    Curtailed hydropower generation, alongside falling water stocks at major reservoirs in the country, also shored up coal demand.

    Average daily coal usage at China’s six major coal-fired utilities in coastal regions reached about 628,500 tonnes in May, which is 15% higher than in April and also 7.7% more than a year earlier, according to information from financial data provider Wind. 

    China aims to cap coal-fired power capacity at 1,100 gigawatts (GW) and the number of coal mines at 5,000 by the end of 2020, the state planner said on Thursday, keeping up efforts to ease overcapacity in industry and boost consumption of clean energy.

    The world’s top consumer of coal had 104 GW of installed coal-fired power capacity and 5,268 coal mines nationwide by 2019.

    “(China) will eliminate outdated and unqualified coal-fired power units…(and) will approve new coal-fired power projects orderly and moderately based on needs,” the National Development and Reform Commission (NDRC) said in a statement.

    Researchers had feared China might struggle to meet climate pledges this year as it turns to heavy industry and carbon-intensive projects to shore up its coronavirus-stricken economy.

    China will continue to support renewable energy development providing that electricity generated from renewable sources could be absorbed by grids, the state planner added.

    It aims for total installed capacity of 340 GW of conventional hydropower, with installed capacity of both wind and solar power to reach about 240 GW by the end of the year.

    However, about 4% of the electricity generated by wind farms and 2% by solar stations did not connect to China’s grid last year, thanks to its insufficient power carrying capacity, data from the National Energy Administration (NEA) shows.

    To push local grid firms to prioritise purchase of clean sources, the agency set quotas early this month for each province’s minimum consumption of renewable electricity in 2020. (Reporting by Muyu Xu and David Stanway; Editing by Clarence Fernandez)

    South African coal miner Exxaro Resources said on Thursday that it expects a slight fall in half yearly total coal production and sales volumes amid subdued demand on the back of COVID-19-fuelled lockdown measures. Exxaro said it expects half-yearly coal production and sales volumes to fall by 1% and 2%, respectively, and anticipates 2020 capital expenditure to be 15% lower than the outlook provided in March.

    India’s private companies could start developing coal mines with an annual capacity of 15 million tonnes by the end of March, the country’s coal minister told Reuters, a move that would end the near-monopoly of state-run Coal India (COAL.NS).

    Prime Minister Narendra Modi this month officially launched the auction of 41 coal mines to companies including those in the private sector, with an annual production capacity that is nearly one third of national total output.

    “This year by end of March, if everything goes well, 15 million tonnes we will start this year,” India’s Coal Minister Pralhad Joshi told Reuters in a telephone interview late on Tuesday.

    India’s consumption of coal fell 3.3% to 958 million tonnes in the year ended March 2020, and is expected to fall further this fiscal year due to the coronavirus, Joshi said.

    Some analysts expect coal demand to be tepid, amid increased adoption of renewable energy in electricity generation.

    Ratings agency Moody’s Indian unit ICRA said on Tuesday it expects domestic coal demand is estimated to grow at 2.9% between fiscal years 2021 and 2027, nearly half the rate seen in the preceding seven years.

    However, Joshi expects demand to bounce back.

    “We have to be prepared for a national coal consumption of 1,300-1,400 million tonnes of coal by 2023-24 including coking coal,” he said, adding he expected Coal India to produce 1 billion tonnes and the private sector to account for the rest.

    India, the world’s second largest consumer and producer of the fuel, and saw imports rise nearly 7% this year to 251 million tonnes, with production falling for the first time in over two decades.

    China’s coal imports dropped 6.7% in June from the same period last year, as stringent import restrictions at ports impeded purchases by traders and power plants, despite solid fuel demand.

    China, the world’s top coal importer, brought in 25.29 million tonnes of the fuel last month, data from the General Administration of Customs showed on Tuesday.

    That compares with 27.1 million tonnes in June last year but is still higher than 22.06 million in May, driven by stockpiling demand ahead of the peak summer season.

    Customs had been stepping up curbs on coal imports since May, through lengthy processing and import quotas as China looks to bolster its coal industry.

    For the first half of 2020, China brought in a total of 173.99 million tonnes of coal, up 12.7% over the corresponding period last year.

    Powerful state planner, the National Development and Reform Commission (NDRC) met energy firms and local authorities last week, urging miners to boost domestic coal output to ensure market supplies, while not ruling out the possibility of easing the import curbs.

    “Notably, recent floods alongside the Yangtze River delta region would affect hydropower generation, which could buoy coal-fired power demand and support thermal coal consumption,” the China Port and Harbour Association said in a note on Monday.

    The floods have swelled waters in as many as 33 rivers in China to their highest levels in history. 

    Thermal coal prices are expected to start recovering from lows seen this spring as demand for power grows in tandem with countries loosening Covid-19 restrictions and as more lenders tighten financing for new capacity.

    European benchmark coal futures for 2021 have gained almost 20% at around $60.00 a tonne since May.

    Analysts at Fitch Solutions see upside limits though.

    “We do not expect prices to average higher in 2020 compared with 2019 as overall global demand will remain weak, while global production stays buoyant,” they said.

    Asia’s benchmark thermal coal price at Australia’s Newcastle Port for month-ahead delivery, currently around $49 a tonne, should rise in line with higher Chinese power demand and economic activity.

    The global coal supply deficit should ease to 535 million tonnes this year from 587 million tonnes last year, Fitch Solutions said.

    Several coal plants and mines have become unprofitable on weak demand and low prices this year, with some companies announcing stoppages and closures.

    China, however, which produces and consumes about half of the world’s coal, has said it would allow more provinces to start building coal power plants from 2023. Other south east Asian countries still rely on coal to power industrial growth.

    According to the International Energy Agency, around 140 gigawatts (GW) of coal capacity will be added in Asia by the end of 2023, while 100 GW will be retired – equal to a net increase of 40 GW, mainly in China and India.

    Investors widely anticipate a slow demise of coal use due to policies encouraging cleaner natural gas and renewable energy generation, plus public pressure on climate change and divestment from coal assets.

    For several European countries and the United States, weaker gas prices have reduced coal’s appeal for power generation.

    Data released by think-tank Ember showed Europe speeding up its exit from coal in a transition smoothed by the rise of renewable energy.

    The U.S. Energy Information Administration forecasts that both nuclear and renewables’ share of power generation will top coal for the first time this year.

    Longer term, a global coal supply surplus should continue to reduce, which could help lift prices, analysts said.

    “Despite a setback in new installations, the advance of renewable energies is slowing down coal demand, as is the currently generous and therefore cheap supply of gas,” said Barbara Lambrecht, energy analyst at Commerzbank.

    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.

    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 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.

    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.”

    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.

    Zinc is the latest industrial metal to stage a full COVID-19 recovery.

    London Metal Exchange (LME) three-month zinc hit a six-month high of $2,312 per tonne on Thursday. At the height of the industrial metals’ coronavirus meltdown in March, zinc touched a four-year low of $1,675, at which stage it was down 22% on the start of the year. The gap is now less than 1%.

    The exuberance comes despite a surge in LME warehouse stocks, which at 188,175 tonnes are the highest they’ve been since October 2018.

    It’s an ominous sign of the potential mountain of unsold inventory that has accumulated during the lockdown of large swaths of global manufacturing capacity.

    Investors seem to be unfazed, lifting long positions in both London and Shanghai markets with the focus on the unfolding Chinese recovery story.

    Rising LME zinc stocks, however, highlight the narrative tension with the rest of the world, which is recovering only fitfully or not at all.


    LME warehouses have seen cumulative inflows of 71,525 tonnes since the start of last week.

    The arrivals have been concentrated on Malaysia’s Port Klang (12,025 tonnes), Singapore (24,150 tonnes) and New Orleans (29,500 tonnes). The latter has long been a favourite traders’ storage hub since the city is stranded in terms of zinc consumption, meaning stocks can build without undermining physical premiums elsewhere.

    Sometimes metal is drawn to LME warehouses by a premium for cash metal. But there has been no such premium in the London zinc contract since May, since when the benchmark cash-to-three-months timespread has traded in gentle contango.

    Lacking any obvious pull, the inference is that the metal has been pushed onto the exchange as surplus inventory accumulates in the physical market.

    LME stocks are now up by 136,975 tonnes on the start of the year. However, the International Lead and Zinc Study Group (ILZSG) estimates the global refined zinc market registered a supply surplus of 241,000 tonnes in January-May alone.

    Analysts at CRU are looking at a 485,000-tonne surplus over the course of the year, while the median forecast in Reuters’ July poll of analysts was a surplus of 403,000 tonnes.

    It’s hard to avoid the conclusion that more metal is likely to find its way into LME warehouses over the coming weeks and months.


    The looming shadow of surplus hasn’t, however, deterred speculative money from flowing into the zinc market.

    Investment funds tracked by the LME’s Commitments of Traders Report turned collectively net short of zinc in February, unsurprisingly given the scale of the first-quarter price collapse.

    Those shorts have since been covered and net positioning turned bullish again earlier this month. The net long remains modest at 6,102 contracts but the change in sentiment is clear.

    LME broker Marex Spectron publishes its own estimates of speculative positioning but has picked up the same trend. As of Monday’s close of business zinc “exhibits a net spec long of 3.4% of open interest, which is close to year-to-date highs”.

    Chinese speculators also appear to have rediscovered their enthusiasm for base metals.

    Zinc is the latest Shanghai Futures Exchange (ShFE) contract to attract bullish attention, open interest building from 180,000 contracts two weeks ago to a current 219,000.

    The Shanghai zinc price has outperformed London and is at its highest levels since November last year.


    That’s the clue to what is powering this zinc price recovery.

    Zinc market optics in China look very different. Unlike the London market the Shanghai curve is backwardated through February 2021.

    ShFE zinc stocks currently stand at 89,188 tonnes, down by 81,000 tones from the March highs at the height of China’s lockdown.

    Industrial metal markets are tracking the flow of Beijing’s stimulus funds and zinc ticks the construction and infrastructure boxes in the form of galvanised steel.

    China’s automotive sector, another big galvanised user, appears to be experiencing its own sharp recovery with sales up 11.6% in June on the back of strong demand for trucks and commercial vehicles.

    It’s noticeable that China’s imports of refined zinc have started picking up over the last two months, with June’s tally of 64,700 tonnes the highest monthly total since August last year.

    Imports of zinc concentrates, by contrast, fell 40% month-on-month to 213,000 tonnes, indicating lower availability from countries such as Peru where production has been hit hard by quarantine measures.

    The sharp turnaround in the zinc raw materials market this year is expected to continue capping concentrate availability with a knock-on effect on China’s zinc smelter production in the second half of this year.

    A constrained zinc supply chain and a recovery in end-use demand are combining to generate a bull narrative in the Chinese market.


    That exuberance is now spilling into the London market, as fund managers look to re-enter a sector they shunned in the first half of the year.

    There is an obvious parallel with the last economic crisis a decade ago, when China came to the rescue of bombed-out metal markets in the form of a shock-and-awe stimulus package.

    Copper in particular is trading the possibility of history repeating itself. Copper traders, however, can point to the massive flows of refined metal that have been making their way to Chinese ports. The transfer of Western surplus to China reinforces the sense of deja-vu with the global financial crisis.

    Zinc, however, is not seeing anything like that level of Chinese buying interest. Cumulative imports were still down by 34% over the first half of the year.

    But it is seeing surplus metal starting to hit the LME warehouse system, a sign that the manufacturing world outside of China is still far from full recovery.

    Copper can ignore this East-West dissonance for now. Zinc, however, is going to find it a lot harder, particularly if LME stocks continue rising at this sort of pace.

    Power utility Eskom and South Africa’s Special Investigating Unit (SIU) said on Monday they had issued a court summons in an effort to recoup 3.8 billion rand ($221 million) they allege was diverted by former Eskom executives and the Gupta family, who ran high profile businesses in the country.

    The move by Eskom and the SIU relates to the 2015 acquisition of Optimum Coal by the Gupta-controlled company Tegeta Exploration and Resources. At issue is a claim by Eskom that the deal involved a payment to the Guptas which was authorised by previous executives, damaging the company financially.

    Eskom alleged “a concerted effort corruptly to divert financial resources from Eskom, (and) to improperly and illegally benefit the Gupta family” in a statement issued jointly with the SIU.

    It said that Eskom had issued a civil summons in the North Gauteng High Court against 12 individuals to recover funds lost.

    Rudi Krause, the lawyer acting for the Gupta family, said he had not received any communication from Eskom or South Africa’s SIU about claim for damages.

    “If they serve a summons properly and my clients are properly cited, then I will have something to respond to. At the moment I know nothing about it,” Krause said. Krause decline further comment on Monday’s statement.

    Eskom is one of several South African state-owned firms which have been investigated over allegations of corruption involving government contracts.

    The investigations have prompted the overhaul of Eskom’s management and board, as well as government promises of stronger oversight, with President Cyril Ramaphosa last year announcing Eskom would be spilt into three separate entities.

    Eskom also has had a succession of chief executives over the past decade as it struggled to service debts totalling 450 billion rand, while trying to keep power supplies going.

    Brian Molefe, who resigned as Eskom CEO in 2017 after South Africa’s state corruption watchdog questioned coal deals struck during his term, was one of the individuals named in the statement. He also said he had not received a summons.

    “Suddenly they whip out this file after three years. Nobody has contacted me,” Molefe said.

    Another former Eskom CEO Matshela Moses Koko, who was also named in the statement, also dismissed the legal move.

    “What a horrific blunder and a bad publicity stunt by Eskom and the SIU,” Koko wrote on Twitter. “I really want to comment but I don’t have the summons. So I don’t know what Eskom is accusing me of,” Koko later told Reuters.

    The SIU is an independent statutory body that is accountable to South Africa’s parliament and the country’s president. It says it conducts investigations at the president’s request.

    A judicial inquiry into alleged corruption involving state contracts worth billions of rand at Eskom and other state firms, which began two years ago, is ongoing.

    South Africa’s parliament and National Treasury have also conducted investigations into Eskom’s Tegeta deal and other aspects of its procurement arrangements, but have not brought any criminal or civil charges. ($1 = 17.1724 rand)

    South Africa’s Eskom has suspended planned power cuts, after returning to service overnight three generating units at coal-fired power stations, the state utility said on Friday.

    More power cuts had been due on Friday in addition to three on consecutive days this week, but supply constraints had eased following the recovery of units at the Lethabo, Medupi and Kusile plants, the ailing utility said in a statement.

    Unplanned breakdowns stand at 8,750 megawatts (MW), out of Eskom’s nominal capacity of 44,000 MW, compared to breakdowns of more than 11,900 MW at one stage on Tuesday.

    Eskom’s struggles to power Africa’s most industrialised nation are one of the main obstacles to economic growth.

    “Any significant deterioration in the generation performance may necessitate the implementation of loadshedding at short notice,” Eskom said, referring to the planned power cuts.

    A tailwind for zinc demand from booming Chinese steel production has pushed prices of the galvanizing metal to their highest in more than nine months and helped it outperform other metals.

    Yet data such as warehouse stock levels suggest further significant gains are unlikely.

    Massive stimulus measures by Chinese authorities to offset the damage to economic growth from COVID-19 lockdowns has boosted demand for zinc and steel. Global zinc demand is estimated at around 14 million tonnes this year.

    Benchmark zinc prices on the London Metal Exchange touched $2,525 a tonne this month, a gain of 11% since the start of the year compared with nearly 9% for copper and a small loss for aluminium.

    Graphic: Zinc outperforms here

    “Strong galvanised steel production in China is behind zinc’s rally,” a source at a commodity trading firm said. “But LME stocks are up, meaning weakness outside China and excess supply.”

    Data from the World Steel Association shows global crude steel production fell 2.5% to 152.7 million tonnes in July from a year earlier, but in China output jumped more than 9% to 94.4 million tonnes.

    “The bulk of (China’s) galvanised steel-consuming sectors such as autos and machinery are gathering momentum,” analysts at Macquarie said in a note.

    “We calculate using (China’s) year to date growth figure that highway investment has grown by an average of 12% since May and railway by almost 20%, despite a cooling evident in July,” the Macquarie analysts said.

    The strength of Chinese demand is seen in zinc prices and tumbling stocks in warehouses monitored by the Shanghai Futures Exchange, which at 77,629 tonnes have dropped more than 50% since March.

    Outside China however, the coronavirus crisis is still taking its toll. Analysts at Citi expect the zinc market surplus to climb to more than 500,000 tonnes from a shortfall of 231,000 tonnes in 2019.

    Some of that surplus has already found its way to LME registered warehouses, where stocks at 224,300 tonnes compare with a number below 50,000 tonnes in February.

    Ample supplies on the LME market have seen cash zinc over the three-month contract trade at a discount of $26 a tonne, the highest since April 2017.

    Among China’s generally strong imports of major commodities in August there was one standout area of weakness – the large drop in coal.

    China’s coal imports fell to an eight-month low of 20.66 million tonnes in August, down 20.8% from July’s 26.1 million and a massive 33% below the level recorded in August last year, according to customs data.

    The soft August outcome meant the growth in imports in the first eight months of the year slipped to just 0.2% from the same period in 2019, down from 6.8% in the first seven months in the year.

    The lack of growth in coal imports in the January to August period contrasts with a 12.1% rise in imports of crude oil, an 11.8% gain in iron ore and a 34% surge in unwrought copper.

    A weaker number for coal had been expected in August given market participants have been warning of Beijing’s unofficial efforts to restrict imports in order to keep domestic prices in a price range that supports miners, but doesn’t cause costs for power generators or industrial users, such as steel mills, to rise too high.

    The problem for major coal exporters, such as Indonesia and Australia, is that the drop in top importer China’s demand removes a key pillar of support, and adds to an increasingly bearish narrative for the polluting fuel.

    Asia’s total imports of coal from the seaborne market have slumped this year amid the economic fallout from lockdowns in many countries as they battle to contain the novel coronavirus pandemic.

    In the first eight months of the year, Asia’s seaborne coal imports were 612.82 million tonnes, down 7.1% from the same period last year, according to vessel-tracking and port data compiled by Refinitiv.

    Looking at the breakdown reveals some interesting disparities.

    China’s official customs data is for total coal imports, including those that come overland by rail and truck from neighbouring countries such as Mongolia.

    Refinitiv data shows that China’s seaborne imports were 183.2 million tonnes in the first eight months of the year, down 4.2% from the same period in 2019, with much of the drop due to the weak August figures.

    Japan, Asia’s third-biggest coal importer, has held shipments largely steady so far in 2020, with the January-August period showing imports of 109.52 million tonnes, lineball with the 109.46 million from the same period last year.


    The drop in the region’s imports has been concentrated in the other two countries that make up Asia’s top four, number two India and number four South Korea.

    India’s imports in the first eight months were 113.48 million tonnes, down 18.4%, or 25.6 million tonnes, from the same period in 2019, according to Refinitiv data.

    While India’s imports recovered slightly in July in August, with figures of 12.7 million and 12.8 million respectively, these are still down on the more usual figure of around 18 million tonnes that prevailed in the months prior to the March lockdown in the South Asian nation.

    South Korea’s imports in the first eight months were 71.01 million tonnes, down 21% from the same period last year.

    The weakness in Asia’s overall demand for coal is being reflected in prices for both thermal coal, used in power plants, and coking coal, used to make steel.

    The Newcastle weekly index, the benchmark for higher-quality Australian thermal coal and assessed by commodity price reporting agency Argus, fell to $46.37 a tonne in the week to Sept. 4, its lowest since November 2006.

    The index has dropped 33.4% from its peak so far this year of $69.59 a tonne in mid-January.

    Lower-rank Indonesian coal slipped to $22.63 a tonne in the week to Sept. 4, the lowest since Argus started assessments in 2008 and down 37.8% from its 2020 peak of $36.67 a tonne from mid-February.

    The question for exporters is whether they believe that China will change its unofficial policy and allow in more imports, and whether they think India’s economy, and power demand will recover strongly in coming months.

    In the absence of these drivers, it would be difficult to forecast a rebound in prices, which are already at levels that will leave some export production economically unviable.

    Zinc prices on Wednesday pushed towards the 16-month highs hit earlier this month as resurgent Chinese industry bolstered the outlook for demand and the yuan strengthened, making metals more affordable for Chinese buyers.

    Benchmark zinc on the London Metal Exchange (LME) was up 1.2% at $2,526 a tonne at 1600 GMT, its fourth consecutive daily gain. It reached a high of $2,583 on Sept. 1.

    Prices of the metal used to galvanise steel are up 34% from their low in March as manufacturing, steel production and infrastructure building accelerate in China, the largest consumer.

    “Demand has picked up in China and we’ve seen some drawdown in zinc stocks,” said Robin Bhar, an independent analyst, predicting prices near current levels at year-end.

    YUAN: China’s currency reached its strongest against the dollar in more than a year after rising 6% in four months.

    ECONOMY: The OECD upgraded its forecast for the global economy this year to a 4.5% contraction from a 6% contraction.

    TRADE WAR: The World Trade Organization said the United States had breached global trading rules by imposing tariffs on China, drawing anger from Washington.

    STOCKS: Zinc inventories in LME-registered warehouses have risen to 219,625 tonnes from 50,000 tonnes in January, but stocks in Shanghai Futures Exchange sheds have slipped to 58,453 tonnes from 170,000 tonnes in March. MZNSTX-TOTALZN-STX-SGH

    SPREAD: The discount of cash zinc to the three-month contract on the LME shrank to $21.40 a tonne from $31 earlier this month, suggesting tighter nearby supply. MZN0-3

    SURPLUS: The roughly 13 million tonne a year zinc market saw a 205,000 tonne surplus in the first six months of 2020, the International Lead and Zinc Study Group said last month.

    OUTPUT: China’s output of copper, lead and zinc rose strongly in August. Kazakh production of copper increased while its zinc output fell.

    ALUMINUM: The Trump administration said it will remove its 10% U.S. tariffs on raw Canadian aluminum.

    OTHER METALS: LME copper was up 0.2% at $6,776.50 a tonne, aluminium was 0.1% higher at $1,791, nickel gained 0.2% to $15,230, lead fell 0.7% to $1,895 and tin was up 0.2% at $18,250.

    South Africa’s National Union of Mineworkers (NUM) threatened on Friday to call a strike at mining companies De Beers, Exxaro and Petra Diamonds after failing to reach wage agreements.

    NUM, one of the biggest mining unions in South Africa, said it had secured a certificate to stage a strike after talks on a wage settlement in mediation with the companies at the Commission for Conciliation, Mediation and Arbitration (CCMA) came to no agreement.

    It said it was finalising picketing rules with the CCMA but did not say when the strike would go ahead.

    “It is going to be a big, big fight,” said William Mabapa, NUM Chief Negotiator at the three companies, said in a statement.

    “Food prices, fuel prices and general inflation had sky-rocketed. There is just no room for peanuts increases and for that, we are prepared for war.”

    The three companies all said in separate statements that they would continue to engage with the union to find a solution.

    “We value our employees and our relationship with the NUM and we will therefore continue with our engagements in an effort to reach a sustainable agreement in the interest of all parties, considering the current external environment,” De Beers, a unit of Anglo American, said in its statement.

    Exxaro is the biggest coal supplier to South Africa’s state-owned power utility Eskom.

    NUM has also reached a deadlock in its wage negotiations with unlisted Seriti Coal Mine and has declared a dispute with the CCMA for mediation, a move that is one step short of a strike.

    South Africa’s labour laws allow for wage disputes to be referred to an outside mediator. If that fails, employees can go on strike.

    NUM said it is demanding an increase of 8.5% across the board while the company is offering workers a 4% rise.

    Seriti said talks with the union were continuing.

    Dalian coking coal futures rallied for a sixth straight session on Tuesday after reports surfaced that China had stopped buying coal from Australia.

    China is the biggest importer of Australian coal, taking 27% of its metallurgical coal in the year ended June and 20% of its thermal coal. Coal was Australia’s second-largest export last year, behind iron ore, worth A$55 billion ($39.52 billion).

    Coking coal on China’s Dalian Commodity Exchange closed 1.5% higher at 1,350 yuan a tonne, after touching a contract-high 1,373 yuan earlier in the session.

    Coke futures also jumped 1.5% to 2,102.50 yuan a tonne, rising for a fifth session and hitting a contract-high 2,127.50 yuan.

    Coke, the processed form of coking coal, is the primary reducing agent of the steelmaking raw material iron ore.

    Australia said it was investigating media reports that China has banned its thermal and metallurgical coal, while playing down a potential sign of escalating trade tensions between the two countries.

    Chinese steel mills’ reaction to the news seemed to be somewhat muted as the country’s import quota for Australian coal is “already tight”, analysts at Sinosteel Futures Co Ltd in Beijing said.

    China’s coal import restrictions resurface from time to time to stabilise local prices during periods of plentiful domestic supply. There may be “another concerted effort by authorities to support the domestic market”, analysts at ANZ said in a note.

    The Australian government expects coking coal purchases by China, the world’s top steel producer, to fall to 67 million tonnes this year, from about 75 million tonnes last year.

    “The uncertainty (over China’s coal import policy) still exists,” Sinosteel analysts said in a note.

    Iron ore futures slumped after data showed China’s imports of the raw material in September rose 8.2% from the prior month, and 9.3% from a year ago to 108.55 million tonnes.

    Dalian iron ore dropped 1.6% while the Singapore Exchange benchmark slumped 2.8% by 0715 GMT.

    Construction steel rebar on the Shanghai Futures Exchange dipped 0.3% and hot-rolled coil slipped 0.1%. Stainless steel lost 0.9%.

    India’s Hindustan Zinc Limited plans to set up a smelter in the western state of Gujarat, it said on Wednesday, potentially increasing the company’s zinc refining capacity by a third.

    Hindustan Zinc, which is majority owned by Vedanta, signed a memorandum of understanding (MoU) with the state government of Gujarat to set up a zinc smelter with annual capacity of 300,000 tonnes.

    The company, which has annual zinc refining capacity of 917,000 tonnes, expects to start producing zinc at the smelter by the 2024 financial year, a company spokeswoman said, adding that the facility would be its second largest.

    Hindustan Zinc, in which India’s federal government owns a 29.7% stake, expects to invest at least 50 billion Indian rupees ($682.4 million) in the project, it said in a statement.

    Australia’s South32 Ltd S32.AX on Monday posted a 12.8% jump in first-quarter metallurgical coal output supported by the reintroduction of a form of underground coal mining at the diversified miner’s Illawarra project.

    The miner said it produced 1.9 million tonnes of metallurgical coal in the quarter ended September, up from 1.7 million tonnes a year ago, and 22% higher than in the fourth quarter. It added that the successful return to a three longwall mine configuration at Illawarra helped.

    The world’s largest producer of manganese ore also said output of the commodity rose 3.2% to 1.5 million wet metric tonnes (wmt) over the quarter as its South Africa operations returned to full production, with COVID-19 restrictions in the country lifted.

    With results improving, South32 said it will restart its share buyback programme for the remaining $121 million of the total $1.43 billion program originally planned.

    The company kept its fiscal 2021 production guidance intact for all of its operations.

    Global steel production has picked up as industrial and construction activity resumes, helping coal prices come back from their COVID-19 slump.

    As part pf planned cost cuts, South32 said it would downsize offices in Singapore and London and reduce its footprint elsewhere.

    Glencore wants to keep its coal mines but run them down over time, believing that this will be a better outcome for the climate than selling them to another operator or spinning them into a new company.

    While it’s arguable that this is actually a better outcome for the environment, it’s also possible that Glencore is setting itself up for a conflict with shareholders, both existing and potential, who are likely to demand firmer action on coal than a long goodbye, even if an extended exit is more profitable.

    Ivan Glasenberg, the chief executive of the diversified miner, told the Financial Times Mining Summit last week that Glencore is not planning to replace its coal mines as the reserves are exhausted.

    Glencore is the world’s largest coal exporter and pledged in February last year that it would cap output at its then annual capacity of 145 million tonnes.

    But Glasenberg appears in no rush to join his global peers in selling off coal assets, saying that this would do little to reduce Scope 3 carbon emissions, which are created when the fuel is burned by the end user.

    “I don’t see how spinning off coal mines will help us reduce Scope 3 emissions,” Glasenberg told the summit.

    He may be correct that a better outcome for the environment is for Glencore to maintain ownership of its coal mines and gradually close them over time, rather than selling them to a less scrupulous investor who may seek to extend their lifespan.

    But investors are increasingly likely to hold a different opinion, given the growing focus on environmental, social and governance (ESG) issues.

    Hardly a day goes by without pension funds, investment companies, banks or development financiers announcing their withdrawal from coal investments.

    While other fossil fuels such as oil and gas are also called out, coal is still the primary target for any group aiming to boost ESG credentials.

    A recent example is the decision by Japan’s Mitsui & Co 8031.T to sell its remaining stakes in coal-fired power plants by 2030, as it shifts to natural gas to meet a 2050 target of net zero emissions.

    Another example is the move by a group of investors, managing a combined $5 trillion, to lower their portfolio carbon emissions by as much as 29% over the next five years.

    The Net-Zero Asset Owner Alliance, a group that includes the biggest U.S. pension scheme CalPERs and German insurer Allianz ALVG.DE, aims to align their portfolios with the 2015 Paris Agreement on climate change, Reuters reported on Oct. 13.


    The trend against investing in coal has been accelerating in recent years and Glencore is likely to find itself swimming increasingly against the tide.

    Glencore also has a solid renewable energy story to tell, being a major producer of the metals needed for batteries and electrical systems that promote the use of non-fossil sources on energy.

    The company is the world’s top producer of cobalt and is also a major miner of nickel and copper.

    However, Glencore may find it hard to sell its role in powering the energy transition as long as the albatross of coal is hanging around its neck.

    Global peers such as Rio Tinto RIO.AX, Anglo American AAL.L and others have already sold their coal assets, or have announced plans to do so.

    While it’s true that merely selling the assets does nothing to cut the volume of coal being produced, it does allow these companies to market themselves as part of the solution to climate change, rather than part of the problem.

    It could also be argued that Glencore’s share price has underperformed relative to its sector competitors, although there are other factors at work beyond ESG concerns.

    However, Glencore’s shares are down 29.4% in London so far this year, while Anglo American has slipped 10.2% and Rio is actually up 1.9%.

    Glasenberg faces something of a paradox in that Glencore keeping its coal mines may be better in the long-term for the environment, but by doing so his company may be punished by those seeking to protect the same environment.

    The London Metal Exchange (LME) zinc price CMZN3 last week touched a high of $2,596.50 per tonne, the galvanising metal’s strongest performance since May 2019.

    The LME lead price CMPB3, by contrast, has been moving in the opposite direction and is now the clear under-performer of the London base metals market.

    These divergent fortunes are not unrelated.

    The relative value trade between the two sister metals – so-called because they are almost always found in the same geological deposits – is a perennial favourite among traders.

    Indeed, the trade can be a price driver in itself with lead often-as-not sold as an expression of a bullish view on zinc.

    Right now zinc’s premium stands at around $765 per tonne, the widest sisterly gap since the second quarter of last year, when it topped out at just over $1,000.

    The divergence looks extreme.

    The International Lead and Zinc Study Group’s (ILZSG) latest forecasts for both metals are gloomy in the extreme but in this particular ugly contest, zinc’s prospects look particularly daunting.


    Every industrial metal has experienced a COVID-19 demand shock this year as manufacturing activity ground to a near standstill in the early months of lockdown.

    Zinc demand is expected to contract by 5.3% and lead demand by 6.5% this year, according to the ILZSG.

    However, these two metals have also experienced severe supply-side disruption as well.

    Zinc mine production is seen sliding by 4.4% and lead by 4.7% due to lockdowns in key producer countries such as Peru, Bolivia and Mexico. Moreover, the Group warned, “a resumption to pre-pandemic production levels is proving to be a challenging process at a number of major mining operations.”

    Raw material constraints have impacted refined metal production as well, albeit much more significantly in the lead market.

    Global refined zinc production is now expected to grow by just 0.9% this year, down from a forecast of 3.7% growth when the ILZSG last updated its numbers in October 2019.

    Refined lead production won’t grow at all but rather will contract by 4.3% this year.

    The difference is down to lead’s heavy reliance on secondary feeds in the form of used car batteries. Scrap recycling chains broke down under lockdowns, knocking out smelters such as Germany’s Nordenham, which the ILZSG notes suspended production in July.

    This smelter effect plays out in the ILZSG’s market balance estimates for each metal.

    Both will generate supply-demand surpluses this year and next. But relative to the size of market, that in zinc is larger at a cumulative 1.08 million tonnes – 8% of this year’s expected global demand – than the forecast 468,000 tonnes in lead – 3.6% of this year’s consumption.


    A key difference between these two markets and copper is that China is not clearing excess metal accumulated in the rest of the world.

    While the country’s imports of refined copper are running at super-hot levels this year, Chinese imports of both zinc and lead are subdued despite raw materials constraints of mined concentrates and recyclable batteries respectively.

    Net imports of refined zinc totalled 288,000 tonnes in the first eight months of this year, down 29% on last year and the lowest count for the first eight months of any year since 2015.

    Refined lead imports have fallen by a steeper 80% and have totalled just 16,000 tonnes so far this year.

    Surplus, in other words, is building without any Chinese release valve.

    Moreover, more of that surplus is showing up in the LME’s physical delivery network, suggesting the market is less comfortable in holding off-market stocks than, say, eminently fungible aluminium.

    Registered zinc stocks have mushroomed to 220,975 tonnes from just 51,200 tonnes at the start of 2020.

    Lead stocks have “merely” doubled to a current 128,175 tonnes, largely thanks to 20,000 tonnes of arrivals at Hamburg in Germany, a possible reflection of the trials and tribulations of the Nordenham plant where sales talks are continuing.

    Low Chinese import demand and the growth in visible surplus means market optics are negative for both metals.


    Given the ILZSG’s statistical snapshot of the two markets’ fundamentals, the yawning price differential looks overdone.

    That doesn’t automatically mean that the gap will close because of the differing engagement of investment funds in the two metals.

    Zinc’s out-performance has been driven by speculative interest in Shanghai, where zinc is often traded as a ferrous derivative on the basis that a lot of zinc is used to galvanise steel for use in the construction and automotive sectors.

    Western investors have been happy to buy into the price strength in what is the LME’s third most liquid market after aluminium and copper.

    Lead, so far at least, hasn’t enjoyed the same Shanghai booster and fund money outside of China is much more wary of lead due to its lower liquidity base and its toxic reputation. When lead does make it into the headlines, it tends to be for the wrong reason, such as last week’s class action lawsuit against Anglo American for legacy contamination.

    It doesn’t help that lead, to quote Tom Mulqueen, analyst at LME ring-trader AMT, simply doesn’t have any “longer-term buzz factor”. The electric vehicle (EV) narrative that is lurking in metals such as nickel doesn’t play out well for lead, where demand is dominated by batteries for internal combustion vehicles.

    It’s an oversimplification of lead’s role in battery storage – even EVs use a lead battery for non-drive functions – but the result is lead is “a pariah metal for investors,” Mulqueen said at last week’s LME Week virtual seminar.

    Funds are often more comfortable shorting lead as the flip side of the relative value trade with zinc than they are buying lead against zinc weakness.

    This always tilts the trade in favour of zinc, whatever the fundamental signals are suggesting.

    If the divergence between the two sisters is to close, look to Shanghai, where speculators are more likely to play either metal from both long and short sides.

    Worth noting right now is the sharp build in open interest on the Shanghai Futures Exchange’s lead contract, which at 65,077 contracts is the highest it’s been since the first week of January.

    A simultaneous slide in zinc open interest suggests that Chinese players at least are starting to mind the gap.

    Glencore GLEN.L reported stronger third-quarter production but its shares fell after it lowered its 2020 coal production guidance by 5.7% as a strike at the Cerrejon mine in Colombia entered its 60th day on Friday.

    Cerrejon, owned equally by Glencore, BHP Group BHPB.L and Anglo American AAL.L, has been in negotiations with its largest union and on Wednesday said that “significant advances” had been made.

    With Glencore’s year-to-date coal production down 20% at 83.5 million tonnes, partly owing to the Cerrejon strike, the company downgraded its full-year output guidance to 109 million tonnes from 114 million tonnes.

    Glencore’s London-listed shares were down 2.4% by 0804 GMT.

    The group maintained its 2020 guidance for all other products.

    Copper production was up 17.6% from the previous quarter at 347,000 tonnes, partly because of an end to coronavirus-related mine shutdowns in various countries.

    “Glencore has bettered our estimates in Q3, a trend we have been generally seeing as companies recover from COVID-19 impacts from Q2,” RBC analysts said.

    Year-to-date copper production was 934,700 tonnes, 8% lower than a year earlier, while cobalt output was down 37% at 21,600 tonnes owing to the shuttering of its Mutanda mine in the Democratic Republic of Congo (DRC).

    Glencore subsidiary Katanga Mining’s Kamoto Copper Company mine in DRC is ramping up to full production and should produce 270,000 tonnes of copper as cathode this year, head of Africa copper Mark Davis said last month.

    “Glencore has delivered a solid third-quarter operating performance, including the continued successful ramp-up of Katanga, which remains on track to achieve design capacity by year-end,” said Chief Executive Ivan Glasenberg.

    Some of the world’s largest insurers and pension schemes are warning companies they invest in not to finance, insure, build, develop or plan new thermal coal plants or face sanctions, including possible divestment.

    The Net-Zero Asset Owner Alliance, whose members include German insurer Allianz ALVG.DE and manage a combined $5 trillion (£4 trillion) in assets, is making the call after a recent commitment to set tougher carbon limits on their portfolios.

    To meet the terms of the Paris Agreement on climate change, which aims to limit global warming to 1.5 degrees Celsius above pre-industrial norms by 2050, developed economies need to phase out most thermal coal by 2030, with a global phase out by 2040.

    In a report seen by Reuters ahead of its release on Monday, the alliance said all companies owned by the group needed to develop their own plans to transition away from thermal coal.

    “If no long-term carbon footprint reduction can be produced the members will need to escalate and ultimately divest,” Günther Thallinger, Member of the Board of Management, Investment Management, Environmental, Social and Governance (ESG) at Allianz, said.

    To help guide them, the group issued a set of core principles including that, other than coal plants currently under active construction, no further thermal coal power plants should be financed, insured, built, developed or planned.

    “Alliance members believe that all companies in our portfolios should have a firm understanding of the wider implications for the activities, operations and projects that they are engaged in,” the report says.

    There should also be an immediate cancellation of all new thermal coal projects that are in a pre-construction phase, including coal mines and related infrastructure, as well as the supply of other products or services.

    In addition, all unabated existing coal-fired electricity generation, that which is not captured by carbon sequestration or storage, should be phased out, it said, adding:

    “Participation in activities and projects that are not aligned with these principles is incongruent with our net-zero goals and the aspirations we have in respect to the different decarbonization strategies of the companies we invest in.”

    South African investors have pulled out of a local multi-billion dollar coal-fired power plant project, putting its construction at risk as opposition to the use of fossil-fuels in the country grows despite crippling power shortages.

    Across the world, investors are coming under increasing pressure to ditch coal, the most polluting of fossil fuels, and switch to greener energy.

    The latest exits from the 630 megawatt (MW) Thabametsi coal-based power plant project in the water-scarce northern Limpopo province follow the withdrawal last month of South Korea’s state-run Korea Electric Power Corp (KEPCO), and South Africa’s big four banks last year after they were targeted by environmental activists.

    Africa’s biggest CO2 emitter and one of the world’s top-ten coal producers had pledged to reduce emissions by more than one third by this year under the Copenhagen Accord by retiring numerous coal plants and intensifying renewable energy investments.

    But the government says it is reliant on coal to increase generation capacity at state-owned power utility Eskom following years of electricity shortages and rolling blackouts.

    KEPCO, which held a 50% stake in the project, told Reuters last week it had initially pledged about $2.1 billion in funding.

    South Africa’s biggest state pension fund manager the Public Investment Corporation (PIC), and the Industrial Development Corporation (IDC), told Reuters they would no longer support the project, which was planned to come online in 2021.

    “We would not consider supporting it in its current form. We recognise that there is a need for clean coal,” IDC said in a statement.

    PIC said it had decided not to continue backing the project, without given further details.

    The Development Bank of Southern Africa (DBSA) said it was reassessing the project to determine if it was in-line with its policy of a “just transition towards a low carbon economy”.

    Only Japan’s Marubeni, which along with KEPCO held a 50% stake, remains a backer of the project.

    The company’s local office did not respond to requests for comment.

    China’s coal imports plunged in October to the lowest this year, with supplies from Australia particularly hard hit amid an ongoing political dispute.

    However, there are other factors at work and while the decline in imports from Australia is a headline-grabber, it’s far from the only story in play.

    China imported 13.73 million tonnes of coal of all types in October, according to customs data, a drop of 27% from September and 47% weaker than October 2019.

    A breakdown of imports by country isn’t yet available, but Refinitiv vessel-tracking and port data shows both top suppliers, Australia and Indonesia, saw significant declines.

    Seaborne imports were 10.03 million tonnes in October, according to Refinitiv, with the difference to official figures being explained by the customs data including overland imports from neighbouring countries, mainly Mongolia.

    Of the seaborne imports, the top supplier was Indonesia with 3.14 million tonnes, down 26.8% from September’s 4.29 million.

    China’s imports from Australia dropped to 2.25 million tonnes, down a massive 62% from September’s 5.87 million.

    These numbers suggest that Australia is indeed being targeted by Beijing, with the government taking out its displeasure with Canberra’s calls for an international investigation into the origins of the novel coronavirus out on trade.

    It’s not just coal being hit by the cooling relations between China and Australia, with reports that customs officials have told importers that shipments of copper ore, barley, sugar, timber and lobsters will also face increased inspections.

    So far though, Beijing has avoided escalating restrictions to the two commodities that really matter, iron ore and liquefied natural gas, perhaps because it will be harder for China to source alternative supplies, especially for iron ore.


    But while the October coal import figures look dire for Australia, the data for the first 10 months shows Indonesia should be concerned as well.

    China’s imports from Indonesia, the world’s biggest shipper of thermal coal used in power plants, dropped 24.5% in the first 10 months of 2020 to 86.88 million tonnes from 115.03 million during the same period last year, according to Refinitiv.

    Imports from Australia dropped a more modest 10.6% to 70.49 million tonnes from 79.85 million, perhaps a reflection that much of Australia’s supplies are coking coal, used to make steel, and sourcing alternatives is somewhat harder, with the United States, Canada and Mongolia the only real options.

    Additionally, China appears to be trying to diversify its coal suppliers, with shipments from Russia gaining so far this year.

    China’s seaborne imports from Russia in the first 10 months of the year were 28.57 million tonnes, up 25.8% from the 22.28 million for the same period last year.

    There is another trend to consider as well, with China restricting customs clearances for coal toward the end of the year in a bid to keep import volumes at a fairly constant level on an annual basis.

    This trend saw only 2.77 million tonnes cleared in December 2019 and 10.23 million in December 2018, and in both those years imports in the fourth quarter showed a dramatic slump from the proceeding quarters.

    The pattern is likely to repeat in 2020, meaning fourth quarter imports may be substantially lower than those for the rest of the year.

    The main question for coal exporters is how the pain is shared, and here the numbers suggest that indeed Australia is now taking the major hit, but so also is Indonesia. 

    The global zinc concentrate market is forecast to switch back to a surplus in 2021, after a short-lived deficit this year, Chinese metals research house Antaike said on Thursday.

    Rising production could return the world’s zinc concentrate market to a surplus of 82,000 tonnes in 2021, after coronavirus-driven supply disruptions kept the market at an estimated deficit of 151,000 tonnes this year, said Xia Cong, the manager of the lead and zinc department at Antaike. “2021 will be the peak time for overseas projects to increase and resume production. Taking COVID-19 into consideration, it (production) will peak starting from the second quarter or even from the middle of the year,” Xia said in a video of her presentation at the China International Lead and Zinc conference in Chengdu.

    The market was also in surplus in 2018 and 2019, according to Xia. The overseas supply decline this year dragged treatment charges lower at smelters. Spot treatment charges for zinc concentrate imported into China AM-TC50-ZNCON fell from $305 a tonne in February, the highest since May 2008, to $95 a tonne, the lowest since Sept. 2018, on Wednesday, as assessed by Asian Metal.

    China is forecast to have a zinc concentrate surplus until 2022, before switching to a deficit from 2023, Xia said. The refined zinc market, however, could be in surplus globally until to 2025, while the Chinese market is seen in surplus until 2021 before switching to deficit in 2022-2025, according to Xia. She estimated 2021 average zinc prices at $2,400 a tonne on the London Metal Exchange (LME) and 19,000 yuan ($2,867) a tonne on the Shanghai Futures Exchange (ShFE).

    Benchmark three-month LME zinc was at $2,620 a tonne at 0641 GMT while ShFE’s most-traded December zinc contract traded at 20,015 yuan a tonne. LEAD Zinc’s sister metal, lead, could be in a deficit in China this year of 28,000 tonnes but switch to a surplus of 77,000 tonnes in 2021, said Zhang Zhiwei, a senior analyst at Antaike, at the conference. Globally, the refined lead market is seen in surplus in both 2020 and 2021, Zhang added.

    China’s unofficial ban on coal imports from Australia is starting to take its toll on volumes, with departing cargoes down sharply so far in November. But something odd is happening with prices.

    China imports two main types of coal from Australia, coking coal used to make steel and thermal coal, used predominantly to generate power, but which can also be used in industrial processes such as cement and ceramics.

    As you may expect, the lower Chinese demand for coking coal has hit prices, with Singapore Exchange futures SCAFc1, which mirror free-on-board Australian prices, dropping to a four-year low of $104.86 a tonne on Friday.

    This is down 25.1% from the recent peak of $140 a tonne on Oct. 5, hit just before reports started emerging of Chinese officials giving unofficial verbal instructions to traders and steel mills to halt purchases of Australian coal.

    While Beijing has made no official comment on banning Australian coal imports, along with commodities such as copper ores, lobsters and barley, China has made clear its anger over Canberra’s call for an international probe of the origins and early response to the coronavirus pandemic.

    Unlike coking coal, however, the price of benchmark Australian thermal coal at the main port of Newcastle has been moving in the opposite direction.

    Newcastle coal futures traded on the ICE Exchange NCFMc1 closed at $63.25 a tonne on Friday, down slightly from the prior day’s close of $62.30, which was the highest in seven months.

    The contract has gained 30.4% since this year’s low of $48.50 on Sept. 7, and has also rallied about 7% since the start of November.

    The Newcastle weekly index ARGMCCINDX=ARG, as assessed by commodity price reporting agency Argus, ended last week at $58.30 a tonne, also the highest since mid-April and about 26% above this year’s low of $46.37 from the first week in September.

    The question is why the price of Australian thermal coal should be rising amid an effective ban by China, especially since volumes appear to be plummeting.

    Australia’s exports of both coking and thermal coal to China were 3.35 million tonnes in October, up slightly from September’s 3.31 million, but dramatically down from 12.33 million in June, the strongest month so far this year, according to vessel-tracking data compiled by Refinitiv.

    The sharp drop in recent months appears likely to get worse in the current month, with just four vessels having loaded coal until now with China as a destination.

    While the data only reflects the first half of November, it is worth noting that October saw 33 ships depart Australia for China, and the peak month of June saw 124 departures.


    However, the shipping data also shows that Australia’s total exports have not been too badly affected, with October departures of 29.34 million tonnes only slightly below September’s 29.86 million and the 32.7 million from the peak month this year of June.

    This suggests that Australia has managed to find other customers for the coal that China is not taking, and indeed exports to India in the three months to October were the highest since April, with September’s figure of 5.97 million tonnes the highest in Refinitiv data going back to the start of 2015.

    However, India’s coal imports from Australia are overwhelmingly coking coal and therefore should have little impact on the price of thermal coal.

    Outside China, Australia’s major thermal coal customers are Japan and South Korea, which present a more positive picture for Australian coal miners.

    Australia’s exports to Japan have picked up slightly in recent months, with October’s 8.3 million tonnes and September’s 8.45 million being the best since March.

    Shipments to South Korea were 4.95 million tonnes in October, up from 4.24 million in September and the strongest since December last year.

    Another factor is that China is having to scramble to source alternative supplies of thermal coal, and there are few countries that can easily step up and deliver coal of the same quality as Australia.

    One of those is South Africa, where the price of thermal coal at the main export port of Richards Bay API4INDEX=ARG, has been rallying, ending at $67.09 a tonne for the week to Friday, up 17.5% from a recent low in mid-October.

    The rising price of alternatives to Australia’s Newcastle has the effect of dragging up the price there as well, notwithstanding Chinese buyers’ withdrawal from the Australian market.

    It is also likely that some global trading players have taken bullish positions in anticipation of Chinese traders trying to find alternatives to Australian cargoes.

    Overall, what appears to be happening is that the thermal coal market is adjusting to the increased likelihood that China will buy less from Australia, and more from elsewhere, even if it ends up in higher prices for a period.

    Zinc prices on Wednesday rose to an 18-month high as a mine shutdown in South Africa and signs that supply in the London Metal Exchange (LME) market is tightening added to expectations of strong demand from China, the top consumer.

    Benchmark zinc on the LME was up 2% at $2,743.50 a tonne at 1215 GMT after reaching $2,770, the highest since May 2019.

    The metal used to galvanize steel has risen more than 60% from a low in March as industrial activity in China rebounded from coronavirus closures.

    “There’s still room for Chinese metals demand to support prices and perhaps push them a little bit higher,” said Capital Economics analyst Kieran Clancy.

    “But the scope for further rallies is really starting to look more limited,” he said, pointing to rising coronavirus cases in Europe and the United States and the likelihood that China will dial back stimulus measures next year.

    VEDANTA: Vedanta Zinc International suspended mining at its Gamsberg zinc mine in South Africa after a geotechnical failure trapped ten employees. The mine produces 250,000 tonnes of zinc a year at full output.

    SPREAD: The discount of cash zinc versus the three-month contract on the LME shrank to $3.30 a tonne, the lowest since June, from $14.50 on Monday, pointing to tighter nearby supply. MZN0-3

    STOCKS: Zinc inventories in LME-registered warehouses have climbed to around 220,000 tonnes from 50,000 tonnes in January, but one entity controls more than half. MZNSTX-TOTAL <0#LME-WHL>

    Stocks in Shanghai Futures Exchange warehouses have trended lower in recent months and sit around 60,000 tonnes. ZN-STX-SGH

    SURPLUS: The global zinc market is expected to switch back to a surplus next year.

    COPPER STRIKES: A unions on strike at Chile’s Candelaria copper mine rejected a contract offer from the company on Tuesday.

    Chile’s Codelco said it had reached advanced contract agreements with two small unions at its El Teniente mine.

    VIRUS: The number of reported global daily deaths from the coronavirus reached a record high of 10,816 on Tuesday.

    OTHER METALS: LME copper was up 0.4% at $7,096.50 a tonne, aluminium was up 0.7% at $1,992, nickel fell 0.8% to $15,815, lead gained 0.1% to $1,942 and tin was 0.3% up at $19,075.

    A pile-up of hidden zinc stocks in Spain has helped create shortages in top consumer China and bolstered a price rally, despite expectations of surpluses this year for the metal used to galvanise steel.

    Stocks not held in exchange warehouses have climbed in several countries, but the stand out is Spain where a major smelting operation is located, analysts and traders said.

    The San Juan de Nieva smelter in Spain, one of the largest in the world, is owned by commodities trading and mining group Glencore, which declined to comment on whether it was piling up zinc.

    “Glencore’s aim in holding stock back from the market would be to support the physical market, support physical premiums,” said a trading source.

    “More importantly, it keeps metal away from London Metal Exchange (registered) warehouses where it would be visible.”

    Benchmark zinc has been the best performer on the London Metal Exchange (LME) since the start of October, rallying about 18% compared with 11% for copper, touching an 18-month peak.

    The latest Reuters survey of analysts shows that the zinc market is forecast to see a surplus 257,500 tonnes this year.

    “You’ve got pretty clear evidence of stock builds of zinc at producer locations rather than on exchange,” according to analyst Oliver Nugent at Citi.

    The sharp drop in refined zinc exports from Spain this year showed the extent of inventory building up there, Nugent added.

    In the first seven months of 2020, exports slid 41% to 161,603 tonnes, data from the International Lead and Zinc Study Group show.

    The shortfall of 111,100 tonnes is nearly half of the expected global surplus.

    China, the world’s biggest consumer of zinc, has seen a decline in refined zinc imports this year.

    The combination of lower supply and rising demand due to Chinese stimulus has created tightness and pushed up bonded warehouses zinc premiums in China to a one-year high of $105 a tonne.

    The shortages, however, could ease, Nugent said.

    “High ex-China producer stocks if unwound could significantly weaken physical markets, but our base case is that they will be held back for some time.”

    Zinc has emerged as the unlikely star performer in the London Metal Exchange (LME) base metals suite.

    LME three-month zinc CMZN3 hit a fresh 18-month high of $2,793 per tonne on Friday and is even outperforming high-flying copper.

    The trigger for the latest leap higher was news that the Gamsberg mine in South Africa is shuttered until further notice while a search continues for two miners missing after an accident.

    This is another unexpected hit to a raw materials supply chain already wrecked by COVID-19 mine lockdowns.

    Demand, meanwhile, is running strong in China, where zinc has been sucked into steel’s bull orbit.

    The same cannot be said of the rest of the world but surplus zinc is being absorbed by the supply chain as “stealth stocks”, accumulating away from the market’s view in the form of rising LME shadow inventory and producer stocks.

    That is helping the bullish optics.


    The temporary closure of Gamsberg, which came on line in late 2018 and was in the process of ramping up to first-stage capacity of 250,000 tonnes per year, has left another hole in the mined concentrates market.

    Zinc and sister metal lead have been hard hit this year by national quarantines in key supplier countries such as Peru, Bolivia and Mexico.

    A market that was expected to register a significant excess of mine production this year is now running short.

    The International Lead and Zinc Study Group (ILZSG) was anticipating a 4.7% surge in mined output this year when it met in October 2019. Fast forward to October 2020 and the outlook is now for global production to actually fall by 4.4%.

    The tensions in the raw materials segment of the zinc supply chain are clear to see.

    Smelter treatment charges in China have tumbled to two-year lows under $100 per tonne as operators compete for concentrates. That’s a long, long way below this year’s benchmark terms of $299.75.

    It’s maybe no coincidence that one of China’s largest players, Minmetals, is now calling for the creation of a Chinese zinc smelters group – along the lines of an existing collective for copper – to negotiate with miners on concentrate supply and pricing.

    Smelter margins are being squeezed and concentrates availability is unlikely to improve dramatically before smelters and miners lock horns on next year’s treatment charge benchmark.


    As with the rest of the base metals pack, zinc’s rally has been forged in China.

    Shanghai zinc has been dragged into a raging bull market in the steel sector, as locals bet on anything that will benefit from the latest government construction and infrastructure stimulus.

    Zinc is an obvious beneficiary of China’s steel boom since galvanised steel accounts for about half of the metal’s usage.

    Zinc is used both as a construction material and in the white goods that fill a newly-completed apartment.

    China’s output of air-conditioners, refrigerators and washing machines slumped by 14% over the first half of the year but bounced 13% year-on-year in the third quarter, according to Citi. (“China White Goods Production and Metal Implications”, Nov. 18, 2020).

    Citi is expecting the recovery in output to continue as the current construction boom translates into more property completions, at which stage white goods enter the equation.


    A mine supply crunch and Chinese demand recovery are the twin motors of zinc’s resurgence from a COVID-19 low of $1,675 in March.

    Missing, however, is any sign of physical tightness in the refined metal segment of the market.

    China has soaked up the rest of the world’s excess copper and a good part of its aluminium since recovering from the pandemic.

    But there has been no similar buying spree in the zinc market yet.

    Cumulative net imports of 332,000 tonnes in the first nine months of this year were 24% lower than last year and the lowest January-September tally of any year since 2015.

    Quite evidently, however acute the raw materials squeeze on Chinese smelters and however strong demand is running, China has had no need to step up its purchases from the rest of the world in the way that it did during the last financial crisis. The country’s net imports jumped to 640,000 tonnes in 2009 from just 112,000 tonnes in 2008.

    Since China has not cleared the world’s surplus of zinc in the same way as it has done in the copper market, there may be a lot of metal around.

    The ILZSG’s October forecast was for a supply-demand surplus of 620,000 tonnes this year.

    Only part of that is in any way visible.

    LME-registered stocks have risen by 171,500 tonnes this year, although from an acutely low base of just 51,200 tonnes at the end of December.

    LME shadow stocks – metal not on warrant but being stored with the option of exchange delivery – rose by 65,000 tonnes between February and September.

    There is more sitting in deeper storage in the physical supply chain.

    The market has noticed a sharp drop in exports of refined zinc from Spain, home to the San Juan de Nieva smelter, one of the largest in the world and owned by metals power house Glencore.

    Spanish exports slid 41% to 161,603 tonnes in the first seven months of 2020, according to ILZSG figures.

    It can be inferred that the missing 111,100 tonnes are sitting in cold storage.

    The last financial crisis was a credit crisis, which is why so much metal turned up on the LME, which lived up to its name as the market of last resort.

    There is no similar credit crunch in the COVID-19 crisis, meaning excess stocks can be financed by the physical supply chain.

    From a producer’s perspective, this helps support physical market premiums and, by keeping part of the surplus hidden away from the LME, accentuates the bull market optics.

    The early-year surplus hasn’t gone away, however, even if it is currently out of sight.

    Zinc has been here before in the middle of the last decade, a bullish mine supply picture jarring with high stocks of refined metal. It was an uncomfortable ride for bulls.

    China will buy $1.467 billion worth of thermal coal from Indonesia next year, the Indonesian Coal Mining Association (APBI) said on Wednesday.

    The trade deal was signed between APBI and China Coal Transportation and Distribution on Wednesday, according to APBI’s statement.

    “It is hoped that there will be an increase of coal exports to China by 200 million tonnes in the coming year,” APBI said.

    “The target quantity will be reviewed every year.”

    Indonesia, the world’s top exporter of thermal coal, has resorted to diplomatic channels to promote coal sales around Southeast Asia, particularly in Vietnam, as exports to China slowed.

    China’s imports from Indonesia, the world’s biggest shipper of thermal coal used in power plants, dropped 24.5% in the first 10 months of 2020 to 86.88 million tonnes, compared to 115.03 million during the same period last year, according to Refinitiv data.

    Australian Prime Minister Scott Morrison said any shift by China away from imports of high quality Australian coal would be a “lose-lose” for the environment and trading relationship.

    Chinese media outlets including The Global Times and Caixin on Monday reported China’s top economic planner had granted approval to power plants to import coal without clearance restrictions, except for Australia.

    Australia on Tuesday urged China to clarify the reports, which it said would breach international trade rules if true.

    Coal is the third biggest export from Australia, which has been embroiled in a worsening diplomatic dispute with its largest trading partner China. Beijing has imposed a series of trade reprisals after Canberra called for an international inquiry into the source of the coronavirus.

    Australia’s prime minister said a shift by China away from Australian coal imports would be “a bad outcome for the environment”.

    “It really is a lose-lose here because Australian coal, compared to that coal that is sourced from other countries, the other countries have 50% higher emissions than Australian coal,” Morrison told media on Tuesday.

    Although A$4 billion of A$13 billion ($3 billion of $9.8 billion) in thermal coal exports went to China, it was not Australia’s largest customer, said Morrison, adding any restrictions on Australian coal would be in breach of World Trade Organisation (WTO) rules.

    Shares of Australian pureplay coal exporters fell sharply. Shares of New Hope Corp Ltd and China-controlled Yancoal Australia Ltd were down 12% in morning trading, while shares of Whitehaven Coal Ltd were down 9%, against a slightly weaker overall market.

    Diversified mining giant BHP Group Ltd, which has coal mining interests, was down 2.5%.

    Trade Minister Simon Birmingham said there had been “a pattern of disruption” of Australian trade with China, and it was well documented vessels had been delayed in offloading Australian coal.

    Australia has raised concerns at a WTO meeting about China taking measures against Australian barley, wine, meat, dairy, live seafood, logs, timber, coal and cotton.

    Beijing’s opaque action in the resources sector involved “disruption through use of state influence with different companies”, Birmingham said on Tuesday.

    Minerals Council Australia chief executive Tania Constable said the success of Australia and China’s trade in minerals relied on a “rules-based trade system” and urged the two governments to restore stability to the long-term trading relationship.

    The Chinese embassy last month outlined grievances about restrictions on Chinese investment in Australia, and criticism of China by Australian parliamentarians and the media.

    Morrison said Australia was a liberal democracy and his government would not back down on these issues.

    “If a perception emerges that there is a conflation between political issues and a trading relationship… That can create a lot of uncertainty for many other trading partners,” he said.

    Australia’s thermal coal exports are expected to hold up relatively well, despite the Chinese restrictions, because buyers were being found in South Korea, Vietnam and Japan, said ANZ commodity strategists Daniel Hynes and Soni Kumari in a research note.

    Australia is the top supplier of iron ore to China, and China’s steel producers on Friday called on the market regulator there to investigate a recent jump in iron ore prices and crackdown on any possible wrong doing.

    Birmingham said “prices of commodities like iron ore respond to the basic economics of supply and demand, and the supply from other parts of the world has been disrupted this year”.

    China should allow businesses to operate according to market principles, he added.

    Zinc bulls have just received a reality check.

    London Metal Exchange (LME) stocks of the galvanising metal surged to a three-year high of 294,500 tonnes this week thanks to the “arrival” of 106,000 tonnes in the space of just two days.

    The stocks shock has transformed zinc from outperfomer to laggard of the base metals pack. At a current $2,565 per tonne, LME zinc has fallen by 11% from its early January high of $2,897.

    The delivery of so much metal in such a short period of time is a bit of market theatre, which seems to have had its intended effect.

    However, the tension between signs of market surplus and falling LME inventory had been building for some time.

    China has not come to the rescue of this particular industrial metal by hoovering up the rest of the world’s surplus metal as it has done for copper. Zinc imports actually fell last year.

    Excess zinc has been steadily accumulating in the off-market shadows. Its sudden appearance has blindsided bulls trading a narrative of a raw materials crunch.


    The global refined zinc market registered a supply deficit of 480,000 tonnes over the first ten months of 2020, according to the International Lead and Zinc Study Group (ILZSG).

    Back in October the group forecast a 620,000-tonne surplus for 2020 and another hefty 463,000-tonne surplus for this year.

    That’s pretty much the consensus view. Research house CRU, for example, thinks that the slump in demand due to COVID-19 restrictions led to a 500,000-tonne metal surplus outside of China last year, with a second year of excess supply expected in 2021. (“Zinc – Top 10 calls for 2021”, Jan. 27, 2021)

    Even Goldman Sachs, which has been heralding the dawn of a new commodities supercycle, is cautious on zinc, “our least preferred” industrial metal.

    When it comes to zinc, the super-bull bank is also with the consensus, projecting a cumulative 868,000-tonne surplus over 2020 and 2021. (“Metals Watch”, Jan. 14, 2021).

    Yet this glut of metal was largely elusive last year. LME stocks rose by just 151,000 tonnes and from a very low base.

    Arrivals slowed to a trickle over most of November and December and headline inventory actually fell by 10,500 tonnes over the fourth quarter.

    The signs were there that metal was accumulating in the shadows. The LME’s “off-warrant” monthly report showed a 71,650-tonne build between February and November last year, centred on New Orleans, which accounted for 47,650 tonnes of this week’s inflow.

    This is metal that is stored with explicit contractual reference to potential LME warranting, in effect a twilight zone between visible exchange stocks and invisible private inventory.

    It’s turned out to be a useful indicator of a bigger stocks build away from the LME’s official figures.

    There could be still more sitting “out there”, given the size of last year’s expected surplus.


    A key differentiator between zinc and copper is the lack of buying appetite from China despite the country’s rapid recovery from COVID-19.

    Net refined zinc imports fell by 6% to 512,000 tonnes last year, which was the lowest annual total since 2016.

    Western surplus, in other words, has largely stayed in the West.

    This is surprising since zinc is likely to have benefitted from the broader Chinese construction and infrastructure recovery momentum. It’s why it’s often traded as a ferrous derivative by locals on the Shanghai Futures Exchange.

    Moreover, China’s own zinc production should have been held back by a squeeze on raw materials caused by pandemic lockdowns in key supplier countries, first and foremost Peru.

    Imports of Peruvian zinc concentrate averaged 70,000 tonnes in the first quarter of 2020. They almost evaporated to just 1,200 tonnes in June as multiple mines reduced operations in the second quarter.

    Yet, Chinese smelters appear to have successfully compensated.

    Total concentrates imports rose by 20% last year with increased supply from Australia in particular offsetting the loss of Peruvian material.

    In the event, Chinese refined zinc production rose by 3.1% to a record 5.3 million tonnes in 2020, according to state researcher Antaike.

    That was around 200,000 tonnes lower than originally expected but evidently more than sufficient to reduce import demand for the rest of the world’s surplus metal.

    Antaike is forecasting even faster growth of 5.7% this year as concentrates supply recovers from last year’s disruption.


    China may have successfully navigated last year’s mine hits, but the concentrates market remains tight and is still a restraining influence on higher smelter utilisation rates.

    Treatment charges levied by smelters for converting concentrates into metal remain at bombed-out levels below $100 per tonne, suggesting fierce competition for available material.

    Everyone expects the supply chain to normalise this year, CRU for example forecasting global mine production to come roaring back with 7.5% growth after a 2.8% contraction in 2020.

    The key question is how long it will take, given the potential for more disruption from second-wave pandemic lockdowns.

    Citi analysts expect a “deep concentrate deficit” to persist through the first half of the year with a possible “total zinc deficit” in the first quarter, meaning the raw material deficit will be greater than the refined metal surplus. (“China Commodities Trade Data”, Jan. 26, 2021)

    ING is more sanguine, looking for recovery from the second quarter onward and a resulting moderate 90,000-tonne concentrates surplus over the year as a whole. (“Zinc: Back on track after a turbulent year of mine supply,” Dec. 17, 2020)

    Timing a turn in the zinc market is evidently going to be tricky and not helped by totally unexpected mine outages such as that at South Africa’s Gamsberg following a pit wall collapse.

    But the market focus on a tight raw materials segment of the supply chain risks ignoring the elephant in the room, namely the large amount of metal that has accumulated outside of China over the last year.

    That elephant has just, partially, shown up.

    China put 38.4 gigawatts (GW) of new coal-fired power capacity into operation in 2020, according to new international research, more than three times the amount built elsewhere around the world and potentially undermining its short-term climate goals.

    The country won praise last year after President Xi Jinping pledged to make the country “carbon neutral” by 2060. But regulators have since come under fire for failing to properly control the coal power sector, a major source of climate-warming greenhouse gas.

    Including decommissions, China’s coal-fired fleet capacity rose by a net 29.8 GW in 2020, even as the rest of the world made cuts of 17.2 GW, according to research released on Wednesday by Global Energy Monitor (GEM), a U.S. think tank, and the Helsinki-based Centre for Research on Energy and Clean Air (CREA).

    “The runaway expansion of coal-fired power is driven by electricity companies’ and local governments’ interest in maximising investment spending, more than a real need for new capacity,” said Lauri Myllyvirta, CREA lead analyst.

    The country’s National Energy Administration (NEA) didn’t immediately respond to Reuters’ request for comment.

    China approved the construction of a further 36.9 GW of coal-fired capacity last year, three times more than a year earlier, bringing the total under construction to 88.1 GW. It now has 247 GW of coal power under development, enough to supply the whole of Germany.

    A team of central government environmental inspectors delivered a scathing assessment of China’s energy regulator last Friday, accusing officials of planning failures and focusing too much on guaranteeing energy supply.

    The NEA had allowed plants to be built in already polluted regions, while projects in less sensitive “coal-power bases” had not gone ahead, they said.

    China has been criticised for pursuing an energy-intensive post-COVID recovery based on heavy industry and construction, and experts say new coal plants could end up becoming heavily-indebted “stranded assets”.

    Christine Shearer, GEM’s coal programme director, said China needs to ensure its short-term development plans align with long-term climate goals.

    “Hopefully as the Chinese government determines its coal power capacity targets for the next five-year plan (for 2021-2025), it will severely restrict if not end new coal plant builds and accelerate retirements,” she said.

    China, which long targeted rapid industrial growth despite its environmental consequences, now aims to become the global leader in “low-carbon tech for a carbon-constrained world” as it unveils its new five-year plan this week, China analysts said.

    That shift is likely to include an accelerated pullback from its role as a major financier of new coal-fired power plants at home and abroad, Isabel Hilton, founder of China Dialogue, a nonprofit news organisation, told an online event on Monday.

    China is today the world’s largest emitter of planet-heating gases, responsible for about 28% of total global emissions.

    Its 2021-2025 economic and social development plan is expected to reinforce a strong signal to Chinese industry to move away from fossil fuels and is likely to mean national emissions start falling within five years, predicted Li Shuo, a senior policy advisor for Greenpeace East Asia.

    In a country that normally sets targets it can achieve or over-achieve, major industries this year must deliver plans on how they will cut emissions in line with China’s commitment last year to become “carbon neutral” by 2060, Li said.

    But shifting rapidly from a focus on dirty industry to greener tech is a challenge everywhere – and China is no exception, said Dimitri de Boer of the China office of ClientEarth, an environmental law charity.

    He described a “very active tug of war” between China’s environment and energy agencies, with uncertainty about whether nearly 37 gigawatts (GW) of coal-fired power capacity approved in 2020 will still go ahead.

    That, combined with the 38GW of new coal power capacity put into operation in 2020 and other projects in the pipeline, is enough to power all of Germany, international researchers said this month.

    Still, De Boer noted “promising signals” China wants to decarbonise, particularly its controversial investments overseas, with an announcement possible before the delayed COP26 U.N. climate negotiations, now set for November in Glasgow.

    Bernice Lee, founding director of think-tank Chatham House’s Hoffmann Centre for Sustainable Resource Economy, said the increasing bad publicity China has received for financing expansion of coal power around the world is forcing a rethink.

    The Chinese model for development spending abroad “is under re-evaluation”, she said, with scientists saying use of coal for energy must rapidly end to prevent the worst impacts of climate change.

    In particular, many projects in the Belt and Road Initiative, a Chinese-backed infrastructure development push in nearly 70 countries – including significant spending on coal plants – have received no new finance since 2019, she said.

    But Andrew Norton, head of the London-based International Institute for Environment and Development (IIED), said China had yet to present a “comprehensive plan” to green its overseas investments.


    Yunnan Chen, a development finance researcher at the London-based Overseas Development Institute, said the expected green shift in China’s new five-year plan, due out Friday, was driven in part by its desire to appear to be doing the right thing, both at home and abroad.

    “There’s really a desire for legitimacy. That’s a constant theme,” she told a separate online event on Monday run by IIED.

    Focusing on the environment is also “no longer seen as part of a Western imperialist agenda”, Sam Geall, acting head of China Dialogue, said during the same event.

    China has framed its coming green push around the idea of achieving an “ecological civilisation” – a term now part of the title of a major planned international biodiversity summit China is scheduled to host later this year, he said.

    With strong public demand to continue battling China’s choking air pollution, some green policies also are likely to be popular at home and reduce social pressure the government sees as a threat, analysts said.

    China sees ramping up green investment in things like renewable power, electric vehicles and battery storage as a chance to seize the lead in a growing global industry, they added.

    As the Asian economic powerhouse tries to identify the technology of the future, it wants “to be a supplier of low-carbon tech for a carbon-constrained world”, said Hilton of China Dialogue.

    “Whatever the policy is in the next three to four years, it’s not going to look at all like it did three years ago,” she added.

    China’s coal consumption is expected to continue rising in 2021 despite Beijing’s pledges to boost the use of clean energy and curb greenhouse gas emissions, the China National Coal Association said on Wednesday.

    China, the world’s biggest coal consumer, saw overall consumption of the fossil fuel increase by 0.6% in 2020 from a year earlier to around 4.04 billion tonnes, according to Reuters’ calculations based on official data.

    “Central government has said it will continue to implement a proactive fiscal policy and a prudent monetary policy, and meanwhile offer the necessary supports for economic recovery … That would push up coal demand in 2021,” the association said in a statement.

    It also forecast China’s coal output would increase in 2021, with the launch of new and advanced coal capacity in major coal mining regions such as Shanxi, Shaanxi, Inner Mongolia and Xinjiang. But central Chinese regions such as Hunan and Jiangxi will continue shut down their outdated coal mines.

    China churned out 3.84 billion tonnes of coal in 2020, the most since 2015.

    Coal imports, however, are expected to remain at last year’s level, although the sources of coal shipments will be more diverse.

    China has increased coal imports from Russia, Mongolia and Indonesia after Beijing stopped allowing any coal cargos from Australia to pass customs clearance in the fourth quarter last year. Relations between Beijing and Canberra have come under increasing strain amid a series of disputes.

    Coal imports totalled 303.99 million tonnes last year, a record high.

    The association also expects Chinese policymakers to aim to limit coal consumption to around 4.2 billion tonnes by 2025, compared with the goal of 4.1 billion tonnes set for the end of 2020.

    China is scheduled to present its new five-year plan for 2021-2025, which will include a wide range of targets from economic growth to energy consumption, to the national parliament conference later this week.

    China generated 53% of the world’s total coal-fired power in 2020, nine percentage points more that five years earlier, despite climate pledges and the building of hundreds of renewable energy plants, a global data study showed on Monday.

    Although China added a record 71.7 gigawatts (GW) of wind power and 48.2 GW of solar last year, it was the only G20 nation to see a significant jump in coal-fired generation, said Ember, the London-based energy and climate research group.

    China’s coal-fired generation rose by 1.7% or 77 terawatt-hours, enough to bring its share of global coal power to 53%, up from 44% in 2015, the report showed.

    China has promised to reduce its dependence on coal and bring emissions of climate-warming greenhouse gas to a peak before 2030 and become “carbon neutral” by 2060.

    “China is like a big ship, and it takes time to turn in another direction,” said Muyi Yang, senior analyst with Ember and one of the report’s authors.

    China has been unable to find enough clean energy to meet rapid increases in demand, with renewables meeting only half of China’s power consumption growth last year.

    New coal-fired power installations reached 38.4 GW in 2020, more than three times the amount built by the rest of the world, according to a February research report.

    China also approved 46.1 GW of new coal-fired projects last year, more than the previous three years combined, with new projects still getting the go-ahead until late in the year, environment group Greenpeace said on Monday.

    China slashed the share of coal in total energy consumption from around 70% a decade ago to 56.8% last year. But absolute generation volumes rose 19% over the 2016-2020 period, Ember calculated.

    In its 2021-2025 five-year plan, China vowed to “rationally control the scale and pace of development in the construction of coal-fired power,” and Yang said tougher measures could follow.

    “I think there will be a cap on coal consumption, and that will have a major impact on the future trajectory for coal power,” he said.

    A sharp drop in this year’s benchmark smelter treatment charges amounts to a collective re-assessment of the zinc market’s underlying dynamics.

    Last year’s benchmark terms were set at a 10-year high of $299.75 per tonne amid a broad consensus the zinc raw materials market was heading for a period of significant oversupply, allowing smelters to lift their charges for converting mined concentrate into refined metal.

    However, the expected surge in mine production failed to materialise as large supplier countries such as Peru and Mexico were rocked by COVID-19 lockdowns.

    As a result this year’s benchmark smelter terms have almost halved to $159 per tonne with smelters forced to accept the changed dynamic.

    Moreover, tightness in the zinc concentrates market is proving much stickier than expected, which is one reason London Metal Exchange (LME) zinc is holding close to two-year price highs despite some hefty inflows of metal into exchange warehouses.


    This year’s benchmark zinc concentrates deal was negotiated between miner Teck Resources (TECKb.TO) and smelter customers Korea Zinc (010130.KS) and Glencore (GLEN.L).

    The deal was first reported by Fastmarkets and has been confirmed by miners such as Australia’s New Century Resources (NCZ.AX), for whom the drop in charges is a big deal.

    Treatment charges represent around 30% of New Century’s cash costs, meaning the 47% year-on-year reduction “delivers a material operational cashflow increase,” the company said in a stock exchange release.

    For the second consecutive year the benchmark has no obvious price participation formulas, probably because after the price turbulence of 2020 no-one’s agreed on what a fair basis price would be from which to calculate the “escalators” and “de-escalators” of past benchmarks.

    It’s possible that zinc concentrates pricing is following copper, which moved away from price participation a decade ago as an unprecedented rally challenged the long-held assumptions underpinning the concept of price-sharing.

    What’s clear, though, is that the profitability pendulum has swung in favour of miners this year after what with hindsight was an unrepresentative, top-of-the-cycle 2020 benchmark.

    Moreover, this year’s benchmark is the second-lowest in more than a decade. It’s worth remembering that the lowest benchmark in the period – $147 per tonne – was set in 2018, a year of mined concentrates scarcity that pushed the LME zinc price to a decade high of $3,596 per tonne.

    COVID-19 HIT

    That price rally was expected to incentivise a wave of new and restarted mine supply.

    When the International Lead and Zinc Study Group (ILZSG) met in October 2019, its forecast was for zinc mine production to grow by almost 5% over the course of 2020.

    In the event, global production actually fell by 5.9% last year, according to ILZSG’s latest assessment.(“Zinc: Review of Trends in 2020”, Feb. 25, 2021)

    Zinc got unlucky in last year’s lockdown lottery as mines around the world were forced to suspend or curtail production as the pandemic spread.

    Mined output fell in Bolivia, Burkina Faso, China, Finland, Kazakhstan, Mexico, Peru, Sweden, Turkey and the United States, according to the ILZSG.

    The slump in this year’s benchmark is a reflection of that simple fact. A year of expected plenty turned out to be one of the worst production years in memory.

    Moreover, recovery from COVID-19 is proving to be a slow process in some countries affected by continuing quarantine measures.

    Smelters are still struggling to source sufficient material, particularly in China, where spot treatment charges continue to flounder at a current $60-74 per tonne, according to Fastmarkets.

    Chinese buyers successfully navigated last year’s choppy COVID-19 waters by tapping suppliers such as Pakistan, Saudi Arabia and Myanmar and zinc concentrate imports rose by 20%.

    But momentum has stalled so far this year, imports falling by 2% over January and February relative to 2020.

    With many northern Chinese mines only starting to emerge from winter hibernation, local smelters are evidently still scrambling to secure top-up material.


    The zinc concentrates tightness is not as acute as that in the copper market, where a lack of mined material is translating into a rolling series of maintenance shutdowns at Chinese smelters.

    Indeed, Chinese refined zinc production is on something of a roll, national output up by 7% year-on-year in March, according to state research house Antaike.

    This disconnect between the raw materials and refined metal segments of the zinc supply chain is not confined to China.

    LME warehouses registered inflows of 31,700 tonnes in the space of just two days – April 9 and 12 – and headline inventory of 296,525 tonnes is now up by 47% on the start of January.

    There is no shortage of refined metal. Despite last year’s collapse in mine output, global refined production rose by 1.2%, according to ILZSG, which estimates the market registered a supply surplus of 533,000 tonnes of metal in 2020.

    Some of that surplus is evidently washing around the LME system. It’s worth noting that as of the end of February there were also 87,400 tonnes of zinc in LME “shadow storage”, whereby metal is stored off-warrant but under warehouse agreements explicitly referencing the option of full exchange delivery.

    There is almost certainly more zinc sitting in the deeper storage shadows.


    This abundance of metal is why most analysts, even those at the super-bullish super-cycle banks, don’t much like zinc’s prospects.

    But then no-one’s much liked zinc’s prospects since the big rally of 2018 because of the expected mine supply reaction.

    Last year’s high treatment charge benchmark captured that narrative even as spot fees were collapsing as the COVID-19 hit to mine supply started to unfold.

    This year’s drastic cut to the benchmark is an acknowledgement that raw materials are still tight and that the mine supply wave is still pending.

    It’s running two years late and the current bombed-out spot treatment charges suggest it’s a while away yet.

    The zinc market has already stubbornly defied bear expectations and the longer mine supply takes to normalise, the longer it will do so.

    China’s coal output rose 16% in the first quarter from the same period last year, bolstered by strong demand for winter heating and robust industrial activity.

    China churned out 970.56 million tonnes of coal between January and March, up from 829.91 million tonnes in the same period in 2020, data from the National Bureau of Statistics (NBS) showed on Friday.

    Production in March alone was 340.76 million tonnes, down 0.2% on year.

    While coronavirus restrictions in the first quarter of this year were less stringent than last year’s, output has been curbed by increased safety inspections at coal mines in China following several fatal accidents at mines across the country.

    Last year, coal mines were shut in January and February as the coronavirus outbreak forced the government to prolong the Lunar New Year holiday and impose travel restrictions across regions, knocking production during those months.

    Coal consumption has meanwhile soared in the first quarter of 2021, driven by a rebounding economy and strong demand for winter heating amid extreme cold weather.

    Daily coal use in China’s eight costal provinces jumped by 23.8% as of end-March from a year earlier, according to data from the China Coal Transportation and Distribution Association.

    Power utilities and end users such as steel mills are calling for coal miners to ramp up output to meet increasing demand, traders said.

    The statistic bureau on Friday also reported that production of coke, widely used in steelmaking, rose 8.6% on year in January-March to 118.97 million tonnes.

    China will start phasing down coal use from 2026 as part of its efforts to slash greenhouse gas emissions, President Xi Jinping said at a summit of global leaders on Thursday, a move that disappointed campaigners hoping for more ambitious pledges.

    Xi, speaking via video link to the Leaders Summit on Climate convened by U.S. President Joe Biden, said China was committed to green development and upgrading its coal-dependent energy system, a major source of climate-warming emissions.

    “We will strictly limit the increase in coal consumption over the 14th five-year plan period (2021-2025) and phase it down in the 15th five-year plan period (2026-2030),” he said.

    Xi’s comments mean that China’s coal consumption, by far the highest in the world, will reach a peak in 2025 and start to fall thereafter.

    Xi already pledged last year to bring China’s emissions to a peak before 2030 and make the country “carbon neutral” by 2060.

    “China has committed to move from carbon peak to carbon neutrality in a much shorter timespan than what many developed countries might take, and that requires hard efforts from China,” Xi told the summit.

    But after the United States and others set higher targets to slash emissions during the Thursday summit, China was widely expected to deliver more ambitious pledges.

    “Unfortunately, there remains a big gap between China’s carbon neutrality vision and the reality of what they announced today,” said Kevin Rudd, former Australian Prime Minister and President of the Asia Society, a non-government organisation.

    Li Shuo, senior climate advisor for environment group Greenpeace, also said more ambitious measures were still required.

    “It is in China’s self-interest to announce and implement further plans ahead of COP26,” he said, referring to the annual climate meeting scheduled to take place in Glasgow in November.

    At a press briefing late on Thursday, Chinese officials stressed that the country’s targets were already very onerous.

    “China certainly hopes to abandon its overreliance on fossil fuels and in order to meet our 2030 goals, we must address the issue of our coal-fired plants,” said Su Wei, deputy Secretary-General of China’s state planning agency.

    China’s energy regulator said earlier on Thursday that it would aim to reduce the share of coal in its total energy mix to less than 56% this year, but it remains one of the only major economies to approve new coal projects.

    “For the moment we don’t have another choice,” said Su.

    A rising tide lifts all boats but some are heavier than others.

    Industrial metals are glowing white hot in a fusion of post-pandemic manufacturing recovery and an emerging narrative of a commodities supercycle.

    Copper has hit all-time highs above $10,000 per tonne, with London Metal Exchange (LME) three-month metal last trading at $10,350. Tin hit a 10-year high on Thursday and aluminium is charging up towards its 2018 peak of $2,718, last trading at $2,530 per tonne.

    But not every metal is on a supercycle surge.

    Lead and zinc have been lifted by the broader metallic rally but seem reluctant participants. While the copper price has more than doubled from its COVID-19 low point in March 2020, zinc has appreciated by a more modest 58% and lead by just 30%.

    The reason, as the International Lead and Zinc Study Group (ILZSG) has noted, is that both markets recorded big supply surpluses last year and are on course to do the same again this year.

    Moreover, neither fits well into the supercycle narrative, leaving the two metals the ugly sisters at the supercycle ball, just as they were during the last price party in 2009-2010.


    The refined zinc market recorded a supply-demand surplus of 486,000 tonnes last year and is forecast to record another hefty surplus of 353,000 tones in 2021, ILZSG’s latest twice-yearly assessment found.

    Lead production, meanwhile, exceeded usage by 172,000 tonnes last year and will do so again this year to the tune of 96,000 tonnes, ILZSG said. It will be the third consecutive year of oversupply.

    Zinc mine production was hit hard by lockdowns in supplier countries last year, falling by 4.9% relative to 2019. But the world’s smelters managed to lift metal production by 1.6%, even as usage slumped.

    Lead production – both mined and refined – fell last year but demand fell harder, unsurprisingly given the metal’s exposure to the automotive sector.

    Critically, China has not come to the rescue by hoovering up the rest of the world’s surplus metal as it has in other markets, including copper and aluminium,

    China’s net refined zinc imports fell by 6% to 512,000 tonnes last year. It was the second consecutive year of decline.

    Net imports of refined lead have collapsed over the last two years from 102,000 tonnes in 2018 to just 17,000 tonnes in 2020.

    Last year’s surplus metal, it follows, is still in storage, albeit not fully statistically visible.

    LME zinc inventory rose by 150,000 tonnes last year but there was a shadow build of 100,000 tonnes in off-warrant stocks – metal warehoused with explicit contractual reference to potential LME delivery.

    The LME zinc market gets the occasional sharp reminder of surplus in the form of concentrated deliveries on to LME warrant, such as the 105,800 tonnes that hit the system over two days in January and the similar 31,700-tonne burst last month.


    Physical surplus is weighing down both metals, neither of which has an obvious tie-in to the electrification and decarbonisation drivers that have set other metals abuzz.

    Indeed, in the case of lead, the metal would seem to be an obvious loser in the transition from internal combustion engines to electric vehicles, even if its usage in stationary battery storage is a forgotten part of the green story.

    Zinc batteries are an expanding part of the battery landscape but still represent a small component of a usage profile that remains dominated by galvanising steel.

    Both metals will continue to benefit from a global manufacturing recovery but neither is likely to generate the same investment excitement rolling over other battery metals such as lithium and cobalt.

    Lead and zinc look set to be the supercycle stragglers, just as they were last time.

    The China-led supercycle of the 2000s saw copper peak at its previous all-time high of $10,190 per tonne in February 2011. Zinc’s all-time high came in 2006 and lead’s one year later in 2007. Both rose with the 2009-2010 price tide but without getting close to their previous summits.


    Zinc’s supply-usage cycle is out of sync with most of the other metals currently enjoying an “old-economy” resurgence.

    That means that lead’s cycle is equally out of kilter since just about all the world’s primary lead comes from zinc deposits.

    Zinc is the dominant sister both geologically and in the trading arena.

    In the ever-popular relative-value trade between the two metals, lead tends to be the bear component. Zinc’s premium to lead is around $750 per tonne.

    That wide gap seems at odds with the ILZSG’s forecasts since relative to global usage – 13.2 million tonnes in the case of zinc last year and 11.5 million for lead – the zinc market would appear to be carrying the heavier weight of surplus metal.

    Lead’s large discount is also surprising since, in contrast to zinc, the market shows signs of physical tightness.

    U.S. premiums are at nine-year highs, according to Fastmarkets, as the shuttering of a secondary smelter in South Carolina leaves buyers exposed to rolling disruption in the freight sector.

    The discrepancy is down to investors’ focus on the zinc raw materials story at the expense of what’s happening in the refined segment of either market.

    The zinc concentrates market is much tighter than anyone expected it to be after zinc’s bull surge over 2017-2018.

    The anticipated wave of mine supply has failed to materialise and following COVID-19 lockdowns, is still running late. 

    The high zinc premium is predicated on this raw materials constraint, which affects lead less because it needs less mined material to balance what is largely a secondary supply chain.

    The focus on zinc mine supply, however, leaves the relative-value trade open to unforeseen developments in the refined metal segment of the markets, such as the mass arrival of zinc stocks in LME warehouses or signs of stress in lead’s physical supply chain.

    Zinc and lead look set to continue fighting it out in this long-running reverse beauty contest. The price gap between the two will tell you which is winning.

    The main bull party is taking place somewhere else.

    Most industrial metals prices rose on Tuesday as investors betting on a long period of low interest rates bought riskier assets, pushing global stock markets higher and dragging the dollar to its weakest since February.

    The weaker greenback helps dollar-priced metals by making them cheaper for buyers with other currencies.

    Benchmark zinc on the London Metal Exchange (LME) was up 1.4% at $3,056 a tonne at 1615 GMT after surging to $3,108.50, its highest since June 2018.

    Lurking in the background are concerns that Peru and Chile will raise taxes on mining companies, potentially squeezing supply of metals including zinc and copper, said Commerzbank analyst Daniel Briesemann.

    But he said industrial metals prices had overshot and would likely dip in the second half of the year, with zinc falling to around $2,600-$2,700.

    FED: Dallas Federal Reserve President Robert Kaplan reiterated that he does not expect U.S. interest rates to rise until next year.

    HOUSING: U.S. homebuilding fell more than expected in April.

    COPPER: LME copper was up 0.1% at $10,387.50 a tonne after reaching a record high of $10,747.50 last week.

    DEFICIT: The roughly 24 million tonne a year copper market will be undersupplied by around half a million tonnes this year and mostly balanced in 2022, the International Wrought Copper Council (IWCC) said.

    MUTANDA: Glencore plans to restart operations at its Mutanda cobalt and copper mine in the Democratic Republic of Congo next year, a source told Reuters.

    CHINA: China’s state planner said it would take measures to stabilise steel and iron ore markets after prices shot up.

    ALUMINIUM: Analysts at Citi said the roughly 65 million tonne a year aluminium market would be undersupplied by 480,000 tonnes in 2022 and 1.08 million tonnes in 2023.

    “We now see LME aluminium rising to $3,000 a tonne by the end of 2022,” they said. Benchmark LME aluminium was down 0.9% at $2,477.

    CHINA IMPORTS: China’s aluminium imports in April rose 36.1% from the previous month, customs data showed.

    OTHER METALS: Tin was 2.3% higher at $30,595 a tonne after reaching $30,650, the highest since 2011. Nickel was up 0.4% at $17,980, lead was up 1% at $2,229.50.

    The world’s seven largest advanced economies agreed on Friday to stop international financing of coal projects that emit carbon by the end of this year, and phase out such support for all fossil fuels, to meet globally agreed climate change targets.

    Stopping fossil fuel funding is seen as a major step the world can make to limit the rise in global temperatures to 1.5 degrees Celsius above pre-industrial times, which scientists say would avoid the most devastating impacts of climate change.

    Getting Japan on board to end international financing of coal projects in such a short timeframe means those countries, such as China, which still back coal are increasingly isolated and could face more pressure to stop.

    In a communique, which Reuters saw and reported on earlier, the Group of Seven nations – the United States, Britain, Canada, France, Germany, Italy and Japan – plus the European Union said “international investments in unabated coal must stop now”.

    “(We) commit to take concrete steps towards an absolute end to new direct government support for unabated international thermal coal power generation by the end of 2021, including through Official Development Assistance, export finance, investment, and financial and trade promotion support.”

    Coal is considered unabated when it is burned for power or heat without using technology to capture the resulting emissions, a system not yet widely used in power generation.

    Alok Sharma, president of the COP26 climate summit, has made halting international coal financing a “personal priority” to help end of the world’s reliance on the fossil fuel, calling for the UN summit in November to be the one “that consigns coal to history”.

    He called on China to set out its “near-term policies that will then help to deliver the longer-term targets and the whole of the Chinese system needs to deliver on what President Xi Jinping has set out as his policy goals”.


    The G7 nations also agreed to “work with other global partners to accelerate the deployment of zero emission vehicles”, “overwhelmingly” decarbonising the power sector in the 2030s and moving away from international fossil fuel financing, although no specific date was given for that goal.

    They reiterated their commitment to the 2015 Paris Agreement aim to cap the rise in temperatures to as close as possible to 1.5 degrees Celsius above pre-industrial times and to the developed country climate finance goal to mobilise US$100 billion annually by 2020 through to 2025.

    U.S. climate envoy John Kerry urged countries in the Group of 20 world’s largest economies to match the measures.

    But some green groups said while they welcomed the steps, the G7 needed to set a stricter timetable.

    Rebecca Newsom, head of politics at Greenpeace UK, said: “Too many of these pledges remain vague when we need them to be specific and set out timetabled action.”

    In a report earlier this week, the International Energy Agency (IEA) made its starkest warning yet, saying investors should not fund new oil, gas and coal supply projects if the world wants to reach net zero emissions by mid-century.

    The number of countries which have pledged to reach net zero has grown, but even if their commitments are fully achieved, there will still be 22 billion tonnes of carbon dioxide worldwide in 2050 which would lead to temperature rise of around 2.1C by 2100, the IEA said in its “Net Zero by 2050” report.

    The world’s coal producers are currently planning as many as 432 new mine projects with 2.28 billion tonnes of annual output capacity, research published on Thursday showed, putting targets for slowing global climate change at risk.

    China, Australia, India and Russia account for more than three quarters of the new projects, according to a study by U.S. think-tank Global Energy Monitor. China alone is now building another 452 million tonnes of annual production capacity, it said.

    “While the IEA (International Energy Agency) has just called for a giant leap toward net zero emissions, coal producers’ plans to expand capacity 30% by 2030 would be a leap backward,” said Ryan Driskell Tate, Global Energy Monitor research analyst and lead author of the report.

    The report said four Chinese provinces and regions alone – Inner Mongolia, Xinjiang, Shaanxi and Shanxi – account for nearly a quarter of all the proposed new coal mine capacity.

    China has pledged to bring its emissions to a peak by 2030 and to net zero by 2060. President Xi Jinping said earlier this year that the country would start to cut coal production, but not until 2026.

    Global Energy Monitor said the new projects not only jeopardise efforts to combat global warming, but could risk saddling companies with as much as $91 billion in stranded assets.

    “Demand for coal is plummeting and financing for new coal projects is drying up,” said Driskell Tate. “New mines and expansions of existing mines will be producing coal for a world in which coal is unviable economically, and untenable for the environment.”

    China announced plans on Wednesday to release industrial metals from its national reserves to curb commodity prices in what some analysts said could be the first such move in a decade by the world’s top consumer of metals.

    The National Food and Strategic Reserves Administration said on its website it would release copper, aluminium and zinc in batches to nonferrous processing and manufacturing firms “in the near future” via public auction.

    The notice came as Beijing struggles to cool a surge in metal prices this year fuelled by a post-pandemic economic recovery, ample global liquidity and speculative buying that has dented manufacturers’ margins.

    China’s May factory gate prices rose at their fastest annual pace in over 12 years due to surging commodity prices, cutting into firms’ profit margins and highlighting global price pressures. 

    As speculation swirled about such a move before it was confirmed by the government, Citi said in a note on Monday that it could be part of “efforts to crack down on commodity price hikes by managing market expectations and deterring speculators, more than resolving any material physical shortages.”

    Citi said the last reported strategic stocks release in China – which did not include copper – was in November 2010. State research house Antaike made parallels between the announcement and the release in 2010.

    Most base metals were trading sharply lower in the Asian afternoon session on Wednesday.

    Benchmark London copper hit a record high of $10,747.50 a tonne in May, having risen more than 60% since March last year when the coronavirus destroyed demand. Shanghai aluminium touched its highest since 2010 in May, while zinc jumped to its highest since 2007.

    “The Chinese authorities are trying to help support the margins at (their) manufacturing industry as they have found it hard to transfer these costs to the end-users,” said commodities broker Anna Stablum at Marex Spectron.

    The statement by the administration did not provide details on quantities of metal to be sold, the auction process or which manufacturers will be allowed to bid.

    Citi estimates China’s state reserves currently stand at 2 million tonnes for copper, 800,000 tonnes for aluminium and 350,000 tonnes for zinc, based on past purchase and sales records.

    “Our base case is for total volumes of … aluminium and zinc selling to be around 2% of China’s annual demand, i.e. around 770,000 tonnes of aluminium and 140,000 tonnes of zinc, and for copper volumes to be minimal,” it added.

    Analysts and traders believe metals markets have already priced in some sales from China’s reserves.

    “However, we still don’t have any information about size of these sales and it will definitely continue to weigh on these markets,” Stablum added.

    The inclusion of zinc in China’s sales of state metal reserves is testament to the market’s continued surprising strength.

    London Metal Exchange (LME) three-month zinc hit a near three-year high of $3,108.50 per tonne last month and is currently trading around $2,900.

    The Shanghai Futures Exchange (ShFE) zinc contract has out-performed London, last month hitting its highest level since 2007.

    There is no evidence of the speculative excess the Chinese authorities have targeted in other over-heating commodities such as iron ore.

    ShFE zinc volumes shrank in both 2019 and 2020 and have risen only marginally this year. Market open interest hit a six-year low at the end of February. It has partially recovered but was still 24% down on last year at the end of May.

    The lack of investor interest derives from a less-than-exciting narrative of a market inexorably moving into over-supply after the price spike of 2018.

    Yet zinc has stubbornly declined to perform to script, particularly in China.

    The largely unexpected price resilience is proving a boon for Western producers. It may prove to be highly propitious for China’s state stockpile managers.


    Zinc isn’t classified as a strategic metal in China and the state’s reserves have to some extent been accidental.

    Low prices in 2009 and again in 2012 saw what was then the State Reserves Bureau (SRB) coming to the rescue of local producers by buying up surplus metal.

    Tonnage and pricing were fully disclosed because the government wanted to send a price signal. As was also the case when the SRB sold 50,000 tonnes back to a resurgent market in 2010.

    Net purchases over the 2008-2013 period amounted to 354,000 tonnes, which is what the market assumes is the volume of zinc held by what is now The National Food and Strategic Reserves Administration (NFSRA).

    The NFSRA is tendering for the sale of 30,000 tonnes of zinc in July with the potential for more monthly sales if required. The auction is only open to industrial users.

    It’s a neat way of combining limited firepower with maximum price signalling power as the government tries to dampen the inflationary heat.


    It is also intended to alleviate short-term tightness in the Chinese supply chain caused by power rationing in Yunnan province.

    The hydro-rich province, which accounts for around 12.5% of the country’s refined zinc production, is currently suffering from drought. All large power users, including zinc and aluminium producers, have been forced to reduce operating rates.

    This supply constraint has coincided with a period of super-strong demand growth as Chinese manufacturing rebounds from the pandemic, led by the steel sector, a big zinc user for galvanised sheet.

    The resulting tensions in the Chinese market-place have been the primary driver of higher zinc prices, both in Shanghai and in London.

    China is the world’s largest processor of mined concentrates into zinc metal and its supply woes – a lack of raw material due to COVID-19 lockdowns last year and the current operating cap in Yunnan – have coloured the global picture.

    World mine supply surged by 11.3% in the first four months of this year as the disruption caused by lockdowns in key producer countries such as Peru fades.

    Yet global refined metal production grew by only 4.5%, according to the International Lead and Zinc Study Group.

    It estimates the zinc market recorded a supply-demand surplus of just 31,000 tonnes in January-April, compared with a surplus of 256,000 tonnes in the same period last year and an April forecast for a 353,000-tonne surplus this year.

    The tighter-than-expected market is all down to the bottle-neck in China’s processing sector. The country’s refined metal production slid by 8.2% in May relative to April due to the power curtailments in Yunnan.


    Yunnan’s rainy season normally starts around now, which should feed through to normalised operations at zinc smelters over the next couple of months.

    At which point analysts at Macquarie Bank expect zinc to “drift back towards balance” amid both concentrates and refined metal surpluses. The bank forecasts the zinc price to fall from an average $2,720 per tonne this year to $2,300 next year. (“Commodities Compendium,” June 17, 2021)

    Fitch Solution analysts are still gloomier, expecting “a steady downtrend in prices out to 2030”, largely driven by slowing steel production in China. (“Zinc: Price Downtrend To Be Less Steep Than Previously Anticipated,” June 18, 2021)

    The country’s steel production growth is expected to brake sharply from 7.8% in 2018-2022 to 1.3% over the subsequent five years. The flow-through drop in zinc demand for galvanising will transform China into a consistent net exporter, adding to global oversupply, Fitch warns.

    The country hasn’t been a net exporter since 2007 and imports have been running just north of 500,000 tonnes in each of the last two years.

    That’s because the domestic market was in persistent supply deficit to the tune of 292,000 tonnes annually in 2016-2020, according to Fitch. That deficit market is expected to flip to an annual average surplus of 196,000 tonnes over 2026-2030.


    Given such gloomy forecasts, it’s no surprise that some are striking while the market is still hot.

    Australia’s New Century Resources (NCZ.AX) has just announced it has hedged forwards around 25% of its planned mine production – equivalent to around 90,000 tonnes payable zinc – out to June 2024.

    The transaction with Macquarie Bank locks in a weighted average price of A$3,717 per tonne (or US$2,900 per tonne). “The zinc price has never averaged above the company’s achieved hedge price for a three-year duration,” New Century noted.

    China’s stockpile managers find themselves in the same fortuitous position, releasing metal into what just about every analyst thinks will be zinc’s last bull hurrah.

    The SRB bought its zinc in 2008-2009 at prices under 12,000 yuan per tonne. The Shanghai price has slipped from its May highs but remains at a lofty 21,105 yuan.

    Selling state reserves right now looks a very good zinc trade, whatever the broader political motivation to tame commodity price inflation.

    Particularly if the metal will plug the last remaining hole in a refilling supply chain.

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      Zinc Overview


      Recent large mine closures due to exhaustion—the latest happened in Australia and Ireland in early 2016—and price-induced “shut-ins” in Australia and the United States have tightened the zinc concentrate market. China, which produces nearly half of the world’s refined zinc, has seen its output constrained by environmental inspections, closures of illegal mines, and the delayed start-up of new capacity. This has accelerated China’s zinc imports. Meanwhile, demand to galvanize steel in China has been strong, underpinned by steel usage in the construction, infrastructure, automotive, and “white goods” (heavy consumer durables) sectors. The zinc market is expected to remain in deficit in 2018- 19 until new capacity comes online.

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