Traders shy away from China zinc premium gamble in 2018

Merchants used to betting on one of zinc’s most profitable trades are getting cold feet over 2018 premiums, with a lingering backwardation on London Metal Exchange zinc spreads closing off the ability to play the Chinese zinc import arbitrage next year.

The backwardation is putting downward pressure on 2018 annual contract negotiations in China after a year of supply shortages initially posed higher rates, sources in the market told Metal Bulletin. Refined zinc imports are up by 20.5% in January to October this year in China, the world’s largest producer and importer of refined zinc, after a global concentrate shortage and declining treatment and refining charges hit smelter margins. Producers say this points to higher premiums next year. Domestic and regional traders, who act as buyers for China’s 400,000-tonne zinc ingot consumption, are concerned that the currently backwardated LME price spreads will make it impossible to trade the China physical zinc arbitrage. “Producers are really bullish but I would say from a trading point of view we are stuck,” a trader recently at the Antaike China Zinc and...

Published

Echo Ma

Archie Hunter

December 07, 2017

06:55 GMT

London, Shanghai