Zinc Lured East as Mitsui Sees Asia Supporting Premiums

Rising zinc demand in Asia is pulling supplies East, sustaining premiums paid by the region’s steelmakers for the rest of the year, said Japan’s top producer.

Mitsui Mining & Smelting Co. has seen surcharges for recent spot deals near the levels in its long-term contracts, Osamu Saito, a general manager of the company’s business department, said in an interview. Those premiums for annual supplies rose as much as 70 percent year-on-year, compared with a 15 percent gain in 2013, the company said in February.

“The current higher premiums in Asia will remain at least until the end of this year,” Saito said in the interview yesterday at the company’s office in Tokyo. “Supplies in the region will continue to remain tighter” as shipments form Japan decline because of strong demand at home, South Korea’s exports fall and China’s imports rise, he said.

China’s growing hunger for zinc follows its rise in recent years to the largest consumer of gold and soybeans as well as the second-biggest user of oil. Demand for the metal this year is supported by the consumer goods and automobile sectors, Morgan Stanley said in a report July 8. The country’s economy will probably expand by 7.4 percent this year, according to the median of 55 economists’ estimates compiled by Bloomberg.

Japan’s exports of special higher-grade zinc used to prevent steel from rusting have dropped to the lowest since 2011 while China has been buying the metal at the quickest pace in five years. Zinc stockpiles on the London Metal Exchange have declined 29 percent to the lowest since December 2010, with inventories in Europe falling the fastest.

‘Looming Challenge’

“There’s a looming challenge as far as zinc supply is concerned,” said Gavin Wendt, founder and senior resource analyst at Sydney-based Mine Life Pty. “The supply-side picture is accurately represented by shrinking LME inventories.”

The contract for delivery in three months in London was little changed at $2,308.75 a metric ton at 4:43 p.m. in Tokyo. It touched $2,325.50 yesterday, the highest since August 2011. The metal has risen 12 percent in 2014, the best performer among six main metals traded on the LME after nickel.

Morgan Stanley forecast global demand will exceed supply by 300,000 tons next year, a third annual deficit. Cash prices will average $2,123 a ton this year and $2,348 in 2015, the bank said in the July 8 report.

China Demand

China imported 310,974 tons of refined zinc during the first five months of 2014, up 27 percent from same period in 2013 and at the fastest pace for that time of year since 2009, data from the General Administration of Customs show. Japan’s exports of refined zinc during the same period fell 54 percent to about 16,300 tons, the lowest since 2011, according to Ministry of Finance figures.

China, which is the biggest user of the metal, may import as much as 800,000 tons this year, compared with about 624,000 last year, based on the pace of country’s purchases so far, Saito said.

China has begun pulling the metal from Europe as its demand rises and supplies from the region decline. Belgium and the Netherlands, which shipped no zinc to China in 2013, joined Spain among the country’s top 10 suppliers this year, according to Mitsui Mining & Smelting’s analysis of the figures. Shipments from South Korea and Japan plunged 80 percent and 51 percent, respectively, while imports from Spain rose 27 percent.

U.S. Supply

“We’ve heard that some metal was shipped to China from LME warehouses in New Orleans,” Saito said. “If it’s true, stockpiles are now moving into China from the U.S. as well as Europe and this would give strong evidence that current premiums are high enough to cover costs” to ship the metal to Asia.

LME zinc stockpiles totaled 659,975 tons, according the bourse data yesterday. U.S. inventories accounted for 91 percent, followed by 5.6 percent in Europe and 3.7 percent in Asia. European stockpiles shrank 76 percent this year, while inventories in Asia and the U.S. fell about 20 percent each.

Saito didn’t provide a dollar value for the surcharge Asian customers are paying, which is added to the price of the metal for immediate delivery on the LME. Buyers in Europe were paying a premium of about $160 a ton in early July, unchanged from two months ago, according to three traders who asked not to be identified because they aren’t authorized to speak publicly.

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