Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
Chinese zinc producers are rushing to send 30,000 to 40,000 metric tons of refined zinc to warehouses registered with the Shanghai Futures Exchange (ShFE) ahead of November contract expiry on Friday, three sources with direct knowledge said.
That tonnage will take zinc stocks in the ShFE system to between 56,524 to 66,524 tons and is likely to hit prices of the metal, used to protect steel from corrosion. Already they have fallen by 4% to 24,638 yuan since Friday.
More than a dozen of China’s producers are delivering zinc to the ShFE, the sources said. They expect surpluses in the world’s biggest consumer as the country’s construction and real estate sectors show little sign of recovery.
Among those delivering their unsold zinc to ShFE warehouses are subsidiaries of Zijin Mining and Jiangxi Copper, the sources said.
ShFE, Zijin and Jiangxi Copper did not respond to emails and calls for comment.
The sources could not be named because they were not authorized to speak publicly.
Zinc stocks in ShFE-monitored warehouses have almost doubled this week with deliveries of 24,039 tonnes. Total stocks stood at 50,563 tonnes as of Thursday.
The rate of increase in ShFE zinc stocks will depend on how quickly the Shanghai exchange approves the deliveries. The sources expect to see higher levels on Friday when the monthly contract matures.
Market participants holding zinc positions on ShFE must then decide whether to close or roll over their positions. Delivering physical metal is one way to close their short positions or contracts to sell zinc.
Those that have taken out bets zinc would fall have been frustrated as it has been the best performing metal on the ShFE.
ShFE’s front month zinc contract has gained 16% so far this year to 24,975 yuan per ton, outperforming the 6.4% rise in copper and 5.7% rise in aluminum.
China’s August zinc consumption shrank by 3% to 581,000 tonnes, World Bureau of Metal Statistics data showed.
A Reuters poll published last month showed the global zinc market is expected to see a surplus of 115,000 tons next year.
(By Julian Luk; Editing by Pratima Desai and Barbara Lewis)
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