Chinese zinc traders eye export window to clear domestic glut

Chinese zinc producers are eagerly waiting for exports to become more profitable to help clear a glut of the metal at home.

Shanghai zinc futures are more than $400 a ton below international prices, the biggest discount since 2022. That’s enough to sell spot cargoes to fabricators in Southeast Asia, but the window needs to widen by about another $100 to open up shipments to London Metal Exchange warehouses, said Zeng Tong, an analyst with Jinrui Futures Co.

“Smelters are anxiously watching for the arbitrage window to open for exchange deliveries as domestic inventories keep building,” she said.

China is the world’s biggest producer of zinc, a metal used to galvanize steel that’s been heavily affected by the collapse in the country’s property market. Domestic stockpiles have surged to a four-year high, leaving smelters fretting over worsening demand.

Delivering to the LME, the world’s benchmark exchange, would allow traders to sell more metal at the global price, rather then rely on narrower export channels for more limited spot sales.

The last time China exported meaningful volumes was in October, after production cuts at smelters spurred a spike in international prices. This time, though, traders are contending with less favorable conditions. Overseas industrial demand is tepid due to rising energy costs caused by the Iran war, which could cap sales, said Zeng.

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