LME zinc inventory shortage causes severe crowding out! Spot premium skyrockets to near 30-year highs.

The zinc market of the London Metal Exchange (LME) is facing the most serious squeeze in decades, with traders rushing to buy increasingly scarce zinc inventories to fulfill contracts on the exchange. Data shows that the spot zinc price is $323 per ton higher than the three-month forward contract, the highest price difference since at least 1997. The recent premium on forward contracts is called the "spot premium," which is a typical signal of spot demand exceeding supply. In recent months, buying pressure has been accumulating as zinc inventories in the LME storage network have fallen to near historic lows last seen in 2023. Several western smelters have cut production after processing margins collapsed. Currently, there are only 24,425 tons of zinc stocks available for buyers to withdraw from LME warehouses - barely enough to meet less than a day's demand in the global zinc market of 14 million tons. Data shows that six institutions currently hold long positions in LME stocks and contracts expiring in the next two days, with their total positions equivalent to at least 300% of the immediately withdrawable stocks in the LME system. On the other side of the trade, the spot premium could lead to substantial losses for sellers who do not hold physical metal. The Tom/next zinc price spread, representing the cost of extending positions for one day, rose to $30 per ton on Tuesday, the highest level since the historic squeeze event of 2022. Al Munro, Senior Base Metals Strategist at commodity brokerage firm Marex, said, "LME warehouse receipts show that some institutions hold significant long positions. The reality is that LME's backwardation has not yet attracted substantial inflows of inventory." Meanwhile, Chinese smelters continue to produce, causing a massive price difference between LME zinc prices and Shanghai Futures Exchange (SHFE) zinc prices. Some Chinese companies are planning to export zinc, which could provide some relief for LME buyers in the short term by taking advantage of arbitrage opportunities. Duncan Hobbs, Head of Research at Concord Resources, said, "Current zinc inventories are at extremely low levels, and the supply in the spot market outside of China is very tight. From this perspective, the market itself is indeed vulnerable to the impact of the situation we are currently witnessing."