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A large European steel mill has secured an effective rollover on 2013 premiums for continuous-galvanizing grade zinc to be supplied by a major producer in the region in 2014, market sources told Metal Bulletin.
The deal has resulted in confusion among other producers and traders who have achieved significant increases on both CGG and special-high grade zinc premiums in recent weeks.
A second producer, for instance, has secured year-on-year increases of about $30 per tonne on comparable annual CGG deals, consumers, producers and traders told Metal Bulletin.
While both deals cover significant tonnages, the rollover agreement includes conditions and options to participate in possible falls or rises in premiums that make direct comparisons between them difficult, some observers said.
“There may be some mechanisms in place to follow the market if [SHG] premiums go up, but in my opinion the rollover is a representative market deal,” a source at a steel mill told Metal Bulletin.
CGG premiums are typically about $25-30 higher than SHG premiums, which in the spot market have risen to about $155-165 on an FCA Rotterdam cash payment basis, sources said.
Annual CGG deals have so far been concluded between $170-200 per tonne, the source at the steel mill told Metal Bulletin.
Estimates of the size of the European CGG market vary, but the International Lead and Zinc Study Group assumes that CGG consumption accounts for 32.5% of overall demand in the European Union, which stood at 2 million tonnes in 2012, according to the group’s latest figures.
Many continuous and general galvanizers, which collectively account for more than half of overall zinc demand, book contractual tonnages in deals running from April to March.
Nevertheless, steel mills, which use CGG in the production of galvanized sheet primarily sold to the automotive industry, have also now booked significant tonnages in contracts running from January to December, sources said.
Muddier waters
The size of the first contract is significant enough to complicate ongoing supply discussions, which have thus far been underpinned by a bullish outlook for regional and global zinc demand, trade and producer sources told Metal Bulletin.
“This definitely muddies the water in the CGG market, because going by market conditions, producers should certainly be capable of getting an increase of $25-30,” an analyst told Metal Bulletin.
The rollover agreement also goes against the grain of developments in the special high-grade zinc market, where premiums have risen strongly in both spot and annual deals signed in the past few months.
Some producers in Europe have agreed annual special high-grade zinc premiums of $155-165 per tonne on an FCA Rotterdam basis, up about $20 from contractual terms seen last year.
Demand for both SHG and CGG zinc is recovering modestly in Europe in line with improving economic conditions, and there has been a year-on-year increase in tonnages booked under annual contracts for 2014, according to trade and producer sources.
Moreover, European consumers of SHG, which is exchange-deliverable, also face competition from industrial, trade and financial buyers in the international market, particularly in Asia.
And while the new marketing deal between Noble and Nyrstar has increased competition in the European market, it has not so far had the flattening effect on SHG premiums that consumers initially hoped it would.
Nyrstar, which began marketing its European output jointly with Noble on January 1, sold SHG cargoes into the Chinese market on a trial basis last year, and has signalled its intention move additional tonnages out of Europe and into the Asian market in 2014.
Mark Burton
mburton@metalbulletin.com
Twitter: @mburtonmb