Citibank has reportedly acquired substantial quantities of zinc on the London Metal Exchange (LME) and facilitated an advantageous agreement for storing the metal within LME-approved warehouses. Two sources familiar with the situation have disclosed this information.
While the precise volume of zinc acquired by Citibank remains challenging to ascertain, zinc stocks in LME warehouses located in Singapore have surged by 54% in the last two days, reaching 141,750 metric tons—the highest level since March 2022.
It is reported that much of the zinc entering the LME warrant system, which confers ownership rights, has been supplied by Swiss-based commodity trader Trafigura and London-listed mining behemoth Glencore.
Citi, Glencore, and Trafigura have all chosen not to comment on the matter.
The demand for zinc, commonly used to galvanize steel, has faced stagnation as global manufacturing activity has slowed. Industry insiders suggest that the surplus zinc is being directed towards the LME, a market often seen as a last resort for certain industrial metals.
According to the sources, Citibank has procured the zinc for “rent deals,” collaborating with warehouse companies in arrangements where the expenses or fees for storing the metal within LME facilities are shared.
The cost of storing metal on LME warrant is frequently five times greater than the cost of storing non-LME deliverable metal. On average, rents for storing zinc within LME warehouses can amount to around 54 US cents per ton.
The ongoing production of zinc by smelters, despite weakening demand, has contributed to the surplus, according to industry experts.
Robert Montefusco from broker Sucden Financial noted, “The steel sectors are slowing down, so there’s not much demand for galvanizing right now; that’s decreased significantly.”
A Reuters poll of analysts last month predicted a global zinc market surplus of 135,500 tons for this year.
A noticeable influx of zinc into Singapore commenced three months ago, leading to a buildup of off-LME inventory. The country imported a total of 117,464 tons of SHG zinc in May and June 2023, compared to 32,634 tons in the same period the previous year.
A trader based in Singapore stated, “We observed a similar influx in July, and further deliveries are anticipated.” The trader added that the zinc ingots originate from Spain, South Korea, and India.
The benchmark zinc price dropped to $2,265.50 per metric ton on Wednesday, marking the lowest point in over two months and a decline of 35% since late January.
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