Winter Park, Florida 18/05/2016 - Zinc traders and producers in the US are tightly holding inventories in anticipation of higher prices later in the year.
Premiums for special high-grade (SHG) zinc this week inched up to 6.75-7.25 cents per pound from 6.5-7.0 cents but several sources still concede that the top end of the range might be more aspirational than achievable.
"It's the calm before the storm," one US-based producer said. "It's hard for people to speculate right now because pretty much everyone expects price and premiums to go up so [suppliers] don't want to sell to traders."
"We would rather save our metal and service our customers in the fourth quarter. Right now, no one wants to let material go," the producer added.
Meanwhile, the US Department of Commerce late last year imposed preliminary duties on corrosion-resistant steel products. This has led to a reduction in imports and increased production by American galvanisers.
US imports of galvanised hot-dipped sheets and strip imports into the US totalled just 682,126 tonnes through the first three months of this year, which is down 27.2 percent year-on-year, according to Census Bureau data.
"Ever since that anti-dumping ruling came down, the galvanisers have been running full tilt. They are hard pressed to keep up with demand and they will need extra [zinc] supply in the second half," a producer said.
Additionally, the deeply discounted "junk material" from Asia that has been sitting in warehouses for a year or longer has been mostly depleted. This means that the traditional suppliers to the US market, such as Glencore and Teck, should be able to test higher premiums in the near term, the source said.
"I think the dam will break right around the mating season. That's when consumers will come to the table and see there’s just not the much refined supply out there," the producer said.
In other regions, zinc ingot premiums held steady in Europe over the past week at $130-140 per tonne duty paid, free-carrier agreement (DP FCA) basis Rotterdam.
Offers in Shanghai range upwards towards $130 while bids are closer to either side of $100, according to FastMarkets' data.
"Traders are trying to push things higher - they are saying to customers that they should build stocks now because the premium will go higher in the coming months," an Asian trader said. "But the customers are ignoring those demands. Their business is poor and they won’t build stocks for no reason."
As for the broader market fundamentals, the global zinc market posted a deficit of 13,600 tonnes in March following a surplus of 51,200 tonnes, according to the International Lead and Zinc Study Group as cited by Reuters.
Three-month zinc on the London Metal Exchange was last at $1,886 per tonne, which is slightly below its 20-day moving average but still well above the 2016 low of $1,445 set in January.
"Although we acknowledge negative momentum and bearish macro factors, we are willing to stay on the long side, arguing that investor sentiment remains positively skewed and the fundamentals bullish," FastMarkets analyst Boris Mikanikrezai said.
"We would be inclined to adopt a neutral stance should zinc fall firmly below its 50-day moving average ($1,848) - a support level that we assume is reliable," he added.
(Additional reporting by Ian Walker, editing by Mark Shaw)