Korea Zinc has raised premiums for 2013 term shipments by around a third in Asia as smelter cut backs in China and warehousing deals curbed supply of the metal.
Sources said that Korea Zinc will charge USD 120 for 2013 term shipments to China the world's largest consumer of zinc. This is up from USD 90 last year.
China, which also produces most of the zinc it uses accounted for roughly 5 million tonnes of demand in 12.8 million tonne market last year. South Korea is China's third largest supplier of zinc after Australia and Kazakhstan.
A trader based in Singapore said that Korea Zinc term shipments settled at USD 120 for China and USD 165 to USD 170 for Bangladesh. India is USD 150 to USD 155 cost, insurance and freight basis. Those are up because this year it was USD 90 for China, USD 125 for Bangladesh and USD 120 for India.
Barclays Capital in a research note said that the tightening in the Chinese domestic market for zinc metal follow smelter production cuts this year. While we expect Chinese smelters to ramp up production again this is nevertheless helping to support import premiums.
The higher Korea Zinc term premiums also come as much of the metal in the global market remains locked up in financial deals, making it difficult for manufacturers to get supplies. Typically in such financial deals traders buy physical metal and simultaneously sell forward at a profit while striking a warehouse deal to store it cheaply in the interim.
LME stockpiles are expected to hit record highs above 1.24 million tonnes before year end, but most the metal is stuck in large queues at warehouses because some companies take in more metal than they deliver out.
Warehouse queues were also a driving force behind aluminium premiums that reached record highs this year. Like zinc, aluminium is in global oversupply. The zinc market is seen in a 197,000 tonne surplus next year.
The global market for zinc has seen a string of annual surpluses since the 2008 credit crisis weakened steel sector demand for the galvanizing metal.
