Home Dating asia Column: Zinc shortage worsens with the closure of a second European smelter

Column: Zinc shortage worsens with the closure of a second European smelter


LONDON, Jan 28 (Reuters) – The year has not started well for European zinc buyers.

Premiums for physical zinc are at record highs as the market jostles for the metal after a second zinc smelter closed due to high electricity costs.

Nyrstar is placing its Auby smelter in France on care and maintenance, citing “historically high” European electricity prices that show no signs of slowing down.

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Glencore has already closed its Portovesme zinc plant for the same reason.

The unexpected closure of the two plants left a 260,000 tonne hole in the European zinc supply chain.

It also galvanized the price of zinc on the London Metal Exchange (LME), which is heading back towards October’s decade highs with time spreads still stretched.

European zinc premiums are high and rising due to smelter shutdowns


Premiums for physical zinc in Antwerp and Rotterdam have doubled since last October to $320-380 per tonne above the LME spot price.

The cost of obtaining spot zinc in Northern Europe has now passed the previous peak dating back to 2005, according to Fastmarkets which assesses premiums.

Southern European buyers are paying even more, even though the Italian premium has stopped rising and now stands at $380-420 a tonne.

The energy crisis in Europe and the resulting blow to regional zinc smelters happened so quickly that they took the market completely on the wrong foot.

Low inventories left European buyers particularly exposed.

LME warehouses across Europe contain just 1,350 tonnes of zinc, split between 1,325 tonnes at the Spanish port of Bilbao and 25 tonnes at the Dutch port of Vlissingen. Only 50 tons are actually available, the rest awaiting physical loading.

Stocks recorded at the LME in the United States are higher, at more than 33,000 tons, but that has not stopped local premiums from rising in sympathy with Europe. Fastmarkets just raised its valuation of the Midwest Premium from 18-23 cents per pound to 20-24 cents.

This is a rational price response, given that the two regions will now be competing for imports.


The extra metal will have to come from Asia, which, unlike the West, seems to have plenty of spare zinc.

Most of the zinc stored in LME warehouses is in Asian ports, particularly Singapore, which holds 82,050 tonnes, and Port Klang in South Korea, which holds 30,950 tonnes.

Zinc inventories in China are also rising as the Lunar New Year holiday slowdown is compounded by weakness in the construction sector, a key user of zinc in the form of galvanized steel.

Shares on the Shanghai Futures Exchange jumped another 23% this week to 92,333 tons, the highest level since May last year.

It is possible that an arbitrage-induced flow of Chinese exports will fill the growing supply chain gap from the West.

However, the pilot market should serve as a warning that stock redistribution can be a slow process amid continued port disruption and high freight rates.

The global lead market has spent most of the last year polarized between high inventories in China and a deficit everywhere else. Despite an open arbitrage window, refined lead only started leaving Chinese ports in the fourth quarter of the year.

LME zinc nears 14-year highs as European smelter capacity shuts down


While stocks may be slow to exit Asia, buyers around the world are trying to assess a picture of ever-fluctuating power prices.

Nyrstar had already warned that it was cutting production at its European smelters even before Auby’s announcement. Like other zinc operators, he probably tried to reduce the amperage during peak hours.

The impact of such a load adjustment across Europe is difficult to assess, but it is possible that there will be a greater loss of metal supply than implied by the two confirmed smelter closures.

Everything depends on the spot electricity markets, which are experiencing unprecedented volatility.

The future outlook for electricity prices is equally uncertain.

Everyone assumes that Portovesme and Auby will return once Europe emerges from winter and electricity prices plunge into the warmer summer months.

But what happens next winter? Or the winter after?

Europe’s ongoing power crisis has exposed structural problems in the region’s energy mix that will only worsen as the bloc embarks on a decarbonization path.


This is a big problem for European zinc smelters.

Even the combination of a higher LME price and record premiums is not enough to offset the magnitude of the rising cost of electricity, according to Macquarie Bank.

A cost analysis of a foundry in the Netherlands reveals that it broke even for the whole of 2021, but cash margins “are now firmly in negative territory”, Macquarie said. (“Zinc: Higher Prices and Premiums Can’t Offset Higher Electricity Costs”, January 6, 2022)

Even if the LME zinc price rose to $4,000 per ton, a zinc smelter would need a breakeven electricity price of $157 per MWh, which is still well below forward prices at one months and a year for the Netherlands, Italy and Spain, the bank added.

The LME zinc price nearly hit that level last October, with the metal hitting a 3-month high of 14 years at $3,944 a tonne when Glencore and Nyrstar first sounded the alarm over rising zinc costs. energy in Europe.

The subsequent drop to the $3,100 level in December was due to market skepticism that the impact on metal supply would be significant.

But the closure of first Portovesme and now Auby leaves no doubt about the perilous cost situation of the European zinc smelter sector.

This is why the LME zinc price is up again, the last trade just above the $3,600 level, and why the liquid metal still commands a $25 premium.

European zinc buyers can only hope for a warmer spring early this year.

The opinions expressed here are those of the author, columnist for Reuters.

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Editing by David Evans

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