Zinc premium seen to stay with rising Asia demand

Rising zinc demand in Asia is pulling supplies East, sustaining premiums paid by the region's steelmakers for the rest of the year, said Japan's top producer.

Mitsui Mining & Smelting has seen surcharges for recent spot deals near the levels in its long-term contracts, said Osamu Saito, a general manager of the company's business department. Those premiums for annual supplies rose up to 70 per cent year on year, compared with a 15 per cent gain in 2013, the company said in February.

"The current higher premiums in Asia will remain at least until the end of this year," Saito said. "Supplies in the region will continue to remain tighter."

Japan's shipments are declining because of strong demand at home and South Korea's exports are falling while China's imports are rising, he said.

Japan's exports of special higher-grade zinc used to prevent steel from rusting have dropped to the lowest since 2011 while China has been buying the metal at the quickest pace in five years. Zinc stockpiles on the London Metal Exchange have declined 29 per cent to the lowest since December 2010, with inventories in Europe falling the fastest.

The metal has risen 12 per cent this year, the second-best performer among six main metals traded on the LME.

Morgan Stanley forecast global demand will exceed supply by 300,000 tonnes next year, a third annual deficit. Cash prices will average US$2,123 a tonne this year and US$2,348 next year, the bank said in a report.

China imported 310,974 tonnes of refined zinc during the first five months of this year, up 27 per cent from the same period in 2013 and at the fastest pace for that time of year since 2009, data from the General Administration of Customs show. China, which is the biggest user of the metal, may import up to 800,000 tonnes this year, compared with about 624,000 last year, Saito said.

China has begun pulling the metal from Europe as its demand rises and supplies from the region decline. Belgium and the Netherlands, which shipped no zinc to China last year, joined Spain among the country's top 10 suppliers this year, according to Mitsui Mining & Smelting's analysis of the figures.

"We've heard that some metal was shipped to China from LME warehouses in New Orleans," Saito said.

"If it's true, stockpiles are now moving into China from the US as well as Europe and this would give strong evidence that current premiums are high enough to cover costs" to ship the metal to Asia.