"Not much has been done yet, but [the premium] seems to be lower than last year by at least $10-15 per tonne," a zinc trader said.  

While the contract "mating season" is in full swing, the first deals in north Europe have been reported at $125-130 per tonne duty-paid fca, down from last year’s concluded level of $138-145 per tonne for 2018 supply.

A trader bought 3,000 tonnes of SHG zinc at $130 per tonne, duty-paid fca Antwerp and Rotterdam, while another reported deals at $120-130 per tonne. One consumer also reported slightly lower premium for a very large tonnage. 

In Italy, the first business reported for 2019 also points to a drop in annual premiums of $5-10 per tonne on a delivered duty-paid basis, compared with the 2018 level of $190-200 per tonne.

Glencore, a main supplier to Italy and key driver of annual negotiations, put an initial offer on the table at $198 per tonne, the same level as 2018, but deals were heard concluded below that, Fastmarkets understands. One consumer booked large tonnage at $185-186 per tonne ddp and traders said they were negotiating at around $185-195 ddp.

Most European tonnages have yet to be booked, with producers offering material at around $135-140 per tonne fca and consumers asking for $115-120 per tonne. The levels for 2019 remain just above spot premiums, which Fastmarkets assessed at $118-125 per tonne on Tuesday November 14

The decline in annual contract reflects an improving supply picture, with a global refined market deficit set to fall to 72,000 tonnes in 2019, down from 322,000 tonnes this year, according to a forecast by the International Lead & Zinc Study Group (ILZSG). 

Over the first nine months of 2018, the global market for refined zinc metal was in a deficit of 305,000 tonnes, according to the ILZSG forecast published on November 14. 

Mine supply is expected to increase heading into next year, easing the tightness in concentrates witnessed in 2017 and early 2018. This led to a strong recovery in treatment charges to $120-140 per tonne at the end of October, on a cif Asia Pacific basis, up seven-fold from $10-30 per tonne at the beginning of the year, according to Fastmarkets' assessments.

Research agency Antaike estimates mined zinc capacity outside China will increase by 700,000 tonnes next year, with Vedanta's Gamsberg mine in Namibia and New Century Resources' Century Zinc mine and Glencore's Lady Loretta mine in Australia acting as major contributors.

China’s zinc output is set to expand by 150,000 tonnes of zinc in zinc concentrates, Antaike said, citing increased output from Hunan, Yunnan province.

Nyrstar on close watch
The financial condition of Nyrstar, Europe's largest zinc smelter and refined metal producer, has taken center stage at the negotiation table between producers and consumers this month, with participants concerned about the potential threat to supply availability.

"we have to consider the risks related to Nyrstar should [the company] declare force majeure,” a trader told Fastmarkets. "But many people think Nyrstar is too big to fail.”

On Tuesday, Nyrstar`s share prices reached all-time lows at 0.37 per share, following analyst warnings about Nyrstar`s debt problems attributed to high costs and lower zinc prices.

By midday on November 14, the share price of Nyrstar was at 0.66 per share, still down by half on last week`s levels.

Nyrstar has not responded to a request for comment.

Nyrstar expects to produce 1.07-1.09 million tonnes of refined zinc in 2018 compared with 1.019 million tonnes in 2017, it said on October 30. It produced 797,000 tonnes of zinc metal in the first nine months of the year.

The wide backwardation in LME spreads is also complicating negotiations as stockholders face increased holding costs but, so far, this has had a limited impact. Recent lower offers for spot material have disappeared while LME stocks have dropped to nearly zero and 10-year lows, contributing to the small increase in spot premiums in Europe this month.

LME’s cash/three-month zinc spread was recently at a backwardation of $59.75 per tonne, having been above $60 per tonne earlier on Wednesday.

The three-month zinc price was at $2,476 per tonne on Wednesday November 14, down from more than $3,300 per tonne at the start of the year.