Some commodity traders have ramped up withdrawals of zinc from London Metal Exchange warehouses in recent months. However, the drawdowns may not be to fulfill customers’ spot demand, which is almost non-existent, multiple sources and traders told Fastmarkets. Zinc stocks in LME warehouses in Asia have dwindled to as little as 41,950 tonnes as of Monday September 29. This is the lowest level since April 2023.
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Why London Metal Exchange zinc inventories are falling despite weak demand
But most of the drawdowns are not demand-driven, according to sources.
The lowest level that LME zinc stocks have ever fallen to was 15,600 tonnes in February 2023. During this time, prices hit record highs of $3,240 per tonne. LME zinc stocks stood at 253,250 tonnes on September 27 last year.
A major commodity trading house is among those withdrawing huge volumes of zinc from LME-registered warehouses in Singapore. Yet, sources said the metal is being swapped between warehouses because very few customers are asking for stocks at present.
The withdrawals could also be for speculative purposes. The aim is to buoy the LME zinc price to a certain level following a lackluster start this year, according to the sources. These views were echoed by various analysts spoken to by Fastmarkets.
The LME zinc price has hovered around $2,900 per tonne in recent weeks. This follows it reaching about $3,000 per tonne on September 16.
According to Fastmarkets analyst James Moore, about 335,772 tonnes of zinc has been withdrawn from the bourse’s warehouses so far this year. This compares with 238,850 tonnes in the corresponding period last year.
The stocks are being pulled out at a time when spot demand for the metal in Europe, Asia, and the US remains sluggish.
“It appears a good proportion of the metal [about 335,000 tonnes] withdrawn from warehouses so far appears unaccounted for, which in our view is tied into some form of warehouse or financial activity,” Moore said.
Speculation grows around London Metal Exchange zinc inventories
Since July, about 92,850 tonnes of zinc have left the exchange’s warehouses, Moore said.
Numerous traders told Fastmarkets that there has been no sudden upsurge in demand to warrant the massive stock drawdowns from the warehouse system.
“There is nothing we see in current data to suggest that the market is short of zinc and the need to draw down,” one trader in Europe told Fastmarkets.
Still, the actual tonnage available on the LME system is 30,625 tonnes as of September 29. This is after 11,325 tonnes of canceled warrants.
European zinc premiums were flat during the pricing period to Tuesday September 23. This was amid persistently weak demand, with some traders telling Fastmarkets they are struggling to attract buyers at current premiums.
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