A scramble for zinc for nearby delivery has pushed the premium for the London metal Exchange's cash contract over the three-month future to its highest in more than a year, traders said. The backwardation or premium closed at $33 a tonne on Tuesday, a level last seen in February 2014 from $20 on Friday and a $3 discount on April 23.
"Someone seems to have been caught short," one trader said. "Buying to June and July aggravated the spreads further." One entity holding up to 50 percent LME cash contracts and warrants was also cited as possibly contributing to the jump in premiums. Expectations of supply shortages due to the cautious attitude adopted by producers and mine closures this year are also behind generally higher prices for the metal which is used to galvanise steel.
A recent Reuters survey showed the zinc market could see a 145,300 tonne deficit this year and 200,000 tonne deficit in 2016. Stocks of zinc in LME registered warehouses at 459,750 tonnes are down more than 30 percent since late December 2014. Inventories have been on a downtrend since end-2012. The benchmark three-month contract is up about 20 percent since mid-March at around $2,380 a tonne.
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