Zinc’s cash/three-month spread reached $91 per tonne backwardation on October 12, the widest backwardation in more than 10 years, before easing back to around $30 per tonne following LME stock re-warranting in New Orleans.
“I think zinc recently has set the tone of what to expect across the [LME base metals] complex next year,” an industry source said.
“I don’t think the impact of the new warehouse rules have been fully felt due to the low price volatility but if even a little volatility emerges in the underlying market - like zinc has - then the warehouse stock reaction magnifies that, which in turn causes a volatile feedback loop,” he added.
The LME toughened its warehousing reform in 2015 when it implemented its load-in/load-out (LILO) rule, which forced operators with queues to deliver more tonnage than they take in. In 2016, it got even stricter with increased load-out requirements,...