SYDNEY: Zinc premiums in Asia sank to two-year lows this week on Chinese selling of stocks to raise money, amid tighter credit conditions after a metals financing scam at Qingdao port, industry sources said.
Rising exports by top consumer China could narrow the estimated global deficit of refined zinc this year and next, weighing further on London Metal Exchange (LME) prices that hit six-month lows this week.
About 20,000-30,000 tonnes of European zinc from a Chinese firm will arrive in warehouses in Malaysia and Taiwan in the coming weeks, said three sources with knowledge of the matter. This stock will not be registered in LME warehouses, they added.
"They have been moving it out since August to raise finance but this is the last lot. The question is whether they have (supply) agreements for next year that will now be available to the general market," said an industry source in Singapore, declining to be identified due to the sensitivity of the issue.
Premiums in Malaysia were quoted at around $155 per tonne, free on truck, a two-year low, versus $210 in January, two Singapore traders said.
Premiums for zinc from China, including cost insurance and freight, is at $105, lowest in at least a year, versus $120 in November and $185 at the start of 2014.
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Tighter lending in China after the probe into a suspected metals financing scam at the country's third-largest port at Qingdao has forced many mid-tier metal companies to book losses on term shipments to raise cash.
China's zinc exports rose to 61,253 tonnes in the nine months to September from just around 1,000 in the first five months of 2014, as shipments picked up pace after the Qingdao probe got underway in June.
Many firms had used bank lines backed by metal imports to play on interest rate arbitrage as an extra funding tool. This popular play had been expected to offset any drop in premiums as a result of slowing China growth.
But this source of funding has now dried up, leaving metal companies struggling for working capital, traders said. Chinese firms have also boosted copper and nickel exports this year.
"It has all changed since Qingdao," a banker in Shanghai said. - Reuetrs
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