Half-mln tonne zinc position sparks jitters about hidden stocks – by Eric Onstad (Reuters India – March 14, 2014)


LONDON, March 14 (Reuters) – Metals markets are nervous that nearly half a million tonnes of hidden zinc may be delivered on the London Metal Exchange next week, shaking a market unsure about the extent of further concealed stocks.

Investors who had bought into a bullish story about zinc may be particularly concerned since the appearance of the unforeseen inventories could weigh on prices of zinc, the top LME performer last year.

LME zinc stocks MZNSTX-TOTAL have declined by a third over the past 12 months, encouraging bullish investors, but analysts are uncertain about how much more inventory is stashed away in off-exchange depots in financing deals.

“It’s a very real risk that we do see a very big physical delivery onto the LME at some point over the next week,” said analyst Gayle Berry at Barclays in London. “There has been, we think, a large accumulation of unreported zinc inventories, which could be mobilised to deliver against a large short futures position.”

Barclays estimated that last year alone, about 600,000 tonnes piled up in unreported inventories while BMO Capital Markets this week cited reports that up to 1 million tonnes of hidden stocks are stashed away in Chinese bonded warehouses.

Unease on the market revolves around a huge short position on the LME March contract that accounts for at least 40 percent of futures for that date, according to LME data <0#LME-FBR>.

Based on open interest data, the position is equivalent to at least 448,020 tonnes, worth $881 million at the current price of the March contract of $1,966.50 a tonne.


The March contract matures next Wednesday, when short position holders either have to deliver physical metal, roll the contract forward or close it by buying equal amounts of futures.

Buying such a large amount of futures at the last minute would be difficult so if the short holder wanted to close out or roll, it would have likely already taken action, analysts said.

There have already been some 70,000 tonnes of deliveries over the past week into the LME New Orleans warehouse, the dominant location for zinc.

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