Zinc prices have risen for three consecutive days! Traders scramble for inventory as the LME zinc market faces its tightest situation in decades.

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The London Metal Exchange (LME) zinc market is experiencing the most severe supply squeeze in decades, with spot zinc prices rising for a third consecutive day. Traders are scrambling for increasingly depleted inventories, pushing premiums to the highest levels in over twenty years. Short sellers face huge pressure to cover positions or deliver physical metal.

So far, spot zinc prices on the London Metal Exchange have risen 0.37% to $2,999 per ton, marking the third straight day of increases. The premium of spot zinc over the three-month contract has soared to $323 per ton, setting the highest record in at least two decades. Such a spot premium is a classic sign that spot demand exceeds immediate supply.

The market tension stems from western smelters cutting production due to a collapse in processing profits, causing LME warehouse inventories to plunge to near the record low set in 2023. Currently, there are only 24,425 tons of zinc available for withdrawal from LME warehouses. For the global market, which consumes 14 million tons per year, this inventory is less than one day’s demand.

The Tom/next spread, reflecting the cost of rolling positions, reached $30 per ton on Tuesday this week, the highest level since 2022, and remained at $25 on Wednesday. LME data shows six independent entities hold long positions in inventories and contracts maturing within two days, amounting to at least three times the available inventory.

Inventory Crunch Highlights Supply Vulnerability

Zinc stocks in the LME warehouse network continue to be depleted, pushing the market to a critical point. Tuesday’s data shows only 24,425 tons of zinc are available for buyers to withdraw. Duncan Hobbs, research director at Concord Resources Ltd., said: “Inventory reserves are at extremely low levels. The physical market outside China feels delicately balanced, making the market vulnerable to the kind of shock we are now seeing.”

With several western smelters cutting production following the collapse of processing margins, LME stocks have plunged to near the historic lows recorded in 2023. Analysts believe that unless LME stocks attract new metal inflows, exports from China may be key to alleviating market short-term pressures.

Longs Dominate the Market, Shorts Under Pressure

The large long positions shown in LME data have left sellers with short contracts in a difficult situation. If they cannot deliver physical metal, these short sellers may face heavy losses. Traders are scrambling to snap up the remaining inventory, with the total positions held by six independent entities equaling at least three times the immediately available stock in the LME warehouse system.

Al Munro, Senior Base Metals Strategist at Marex, said:

LME warrant holding reports show there are some important long positions. The reality is that LME’s spot premium structure has yet to attract large inflows of physical metal and inventory.

Industrial metals have moved erratically recently, affected by changes in trading outlook and uncertainty over risk assets. Metal markets as a whole were subdued on Wednesday, reflecting broad caution across risk assets. Copper prices fell 0.1% to $10,613 per ton, continuing to retreat this week after surging earlier this month to near historic highs. Lead and tin rose slightly.

Risk Warning and DisclaimerThe market is risky, and investment should be cautious. This article does not constitute individual investment advice and has not taken into consideration the specific investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific situation. Investment based on this article is at your own risk. ```