Glencore opens up a huge zinc opportunity

Glencore International – which has a takeover offer for Xstrata before shareholders – is loosening its tight grip on the zinc market as part of a compromise with European regulators.

Glencore already controls some 60% of the trade in the metal and in order to please EU competition watchdogs who think a combined group would be too dominant, Glencore said it would open up a 2008 contract it holds with Nyrstar, the world's number one smelter.

FT.com (sub required) reports oil and metals trader Trafigura is "the obvious candidate" to take on the 600,000–650,000 tonnes contract which represent to close to a quarter of the so-called third party trade:

Glencore’s rivals are therefore salivating at the prospect of the deal coming up for grabs: telephones were said to be ringing off the hook on Wednesday in Nyrstar’s commercial department.

Traders said that few other companies [besides Trafigura] would have the logistical capabilities, balance sheet and global reach to take over the deal.

“The list of potential counterparties to take this on globally would be quite limited,” says Duncan Hobbs, analyst at Macquarie.

After a 10% jump in September, zinc prices have since pulled back to trade at $1,830 a tonne. The metal hit historic highs above $4,000 a tonne in 2007, before the global financial crisis.