Tight Zinc In Limbo, Looks At Lme

Zinc premiums for cash over three months metal are approaching historic highs, but the London Metal Exchange (LME) is unlikely to intervene unless the nearby spreads flare, traders and analysts said.yesterday

Any action by the LME would wait until the run-up to the September delivery date, where most of the tightness is centred, they added.

The premium of cash over metal for delivery in three months flipped out to $175 per tonne on Monday, close to highs of $190 in 1992 and $230 in 1989. It eased to about $145 on Tuesday.

The LME intervened in both 1992 and 1989, but only to limit the daily premiums.

 

"As long as the nearbys -- the cash-for-a-day, cash-for-a-week -- are in a contango, they will probably take no action," said one European trader.

The nearby spreads are in contango until the September delivery date in the third week of next month. The scramble for metal stems from a move by Chinese smelters last year to sell forward huge amounts of metal at around $1,100 per tonne.

The premium for September delivery has shot up as European merchants and investment funds keep a tight grip on the metal for the important dates, analysts said.

The premium for the September delivery date over metal for one week later was $55 on Monday. The LME seeks to allow market forces to operate unless a "disorderly" market is threatened. When market players are unable to cover positions just before the delivery date, intervention is seen as necessary.

Analysts say Chief Executive David King would analyse data from the LME's and see if those positions move in tandem with the tightening of the nearby spreads.

Some of the long positions held by funds are equivalent to double the tonnage of LME zinc stocks, one analyst said.