Deals for 2021 contracts have been reached with premiums on a duty-paid fca basis via Antwerp and Rotterdam at $95-110 per tonne level, sources told Fastmarkets, while some market participants said that anything above $105 per tonne was “unachievable” during negotiations.
Premiums have been dropping steadily since 2018.
In 2020, annual contract terms were agreed with premiums at $115-120 per tonne, down from the previous year when they had been agreed upward of $130 in Northern Europe. Before that, levels over $140 per tonne were commonplace.
Lower annual zinc premium levels in Europe come as futures prices for the metal continue to test 20-month highs, reaching $2,894 per tonne in the first week of January.
“Fundamental supply-side factors and macro factors continue to underpin prices, and despite the growing number of nationwide lockdowns being announced to counter the latest Covid-19 wave, we forecast that the current firm price sentiment will continue, before a broad price correction is seen toward the end of the quarter,” Fastmarkets analyst James Moore said.
While most countries in Europe have started vaccinating their populations against Covid-19, countries such as Germany, Spain and France have implemented additional lockdown measures that have kept their economies stagnant.
“The economic recovery is likely to remain somewhat uneven, although the risks now appear more balanced than at times in the second half of 2020 when they were more tilted toward the downside,” Moore said.
Surplus expected for second year in a row
According to the International Lead and Zinc Study Group (ILZSG), there was a surplus of 476,900 tonnes of refined zinc material in Europe in the first 10 months of 2020, while Fastmarkets assessed the full-year 2020 surplus for Europe of 253,000 tonnes.
But with supply chains resuming normal production, there are questions over whether demand will follow suit for the remainder of 2021, even if it is stable over the first few months of the year.
“The impact of current lockdown [measures is] expected to be far less severe than... in the first half of 2020. [But the lockdowns will] still have negative implications for zinc-consuming industries. Based on these assumptions, we forecast zinc demand to increase by 4.5% in Europe in 2021 - although the bulk of that growth is weighted to the second half of the year,” Moore added.
Fastmarkets projects the global zinc surplus to reach 350,000 tonnes this year, while the Chinese metals research company Antaike estimates that the surplus will be slightly lower, at 298,000 tonnes.
“In 2021, supply is expected to continue to exceed demand resulting in a surplus of 463,000 tonnes,” the ILZSG said in October 2020.
In Europe, Fastmarkets forecasts a surplus of 205,000 tonnes for 2021.
Market participants also ascribed some of the drop in premiums to a falling US dollar.
The US Dollar Index, which measures the value of the dollar compared to a basket of currencies from the US’ major trading partners, was around the 90.50 mark this week compared to 97.40 in January 2020.
“If you look at the delivered premium, with a higher exchange rate, the counter value of the euro versus US dollar is higher than [in 2019], so sometimes - even if you apply a few dollars on the fca premium - you end up with delivered unchanged,” said one northern European trader in November.
“So, our feeling is we can't increase the premium at all in  for delivered, so it means a minimum $5 discount on the fca premium for [long-term contracts], going up higher for other customers.”
On the spot business side, some participants are forecasting premiums will be “competitive” in 2021, suggesting that premiums will dip as the year progresses, due to the metal’s fundamental backdrop.
One source said market participants are now able lower premiums on their bids and still get a good level of tonnage for their money, which is not a sign of a lack of metal in the market.
Consumption has been healthy so far in January and, with steel plants now operating at 95% capacity, demand for zinc, which is used in galvanized steel, is nearly back to normal, a multinational steel producer source told Fastmarkets.
Italian premiums drop
In Italy, discounts of up to $10 on 2020 levels have been applied to contracts, according to one Italian trader, even though there were hopes of rollovers from many traders.
Deals for 2021 contracts in the southern European country have been reached, with premiums on an fca basis in northern Italy at $145-155 per tonne, while the duty-paid delivered contracts were broadly settled at $180-195 per tonne.
Nevertheless, market participants are wary going into this year, given the disruption to business seen in 2020.
“I am probably not going to do any contracts for periods longer than six months. We don’t know what the market will be like in the long term, so I prefer to be cautious,” an Italian trader said.
UK premiums stable - but potential Brexit bumps on road ahead
In the UK, those who need to import or export their material to and from the EU are also hesitant, because their business depends on post-Brexit agreements, despite what is perceived as a fair trade deal being struck at the last minute.
“The devil is in the detail, so we will [have to wait and] see,” one galvanizing manager said.
Both selling to and buying from the EU has been restricted so far in 2021, due to uncertainty over customs charges and delays in deliveries, among other issues, said another galvanizing source.
Some market participants said that transport costs could push premiums higher as the year goes on; but for now, most have settled their UK delivered premiums on long-term contracts a $5-7 lower than last year, placing the premium at around $190-210.
"There is enough zinc in the market, so I think 2021 will be a very flat year," said the first galvanizing manager.
According to the World Bureau of Metal Statistics (WBMS), even though the import of zinc slab to the UK fell in January-October 2020 - to 68,800 tonnes from 83,600 tonnes in the same period in 2019 - so did the country’s consumption, which was down to 66,200 tonnes from 80,200 tonnes in 2019.
As always, most participants - galvanizers in particular - are relying on a pick-up in activity in the automotive and construction industries.
Annual zinc ingot supply contracts in Northern Europe and Italy have been negotiated for 2021 at markedly lower premiums than in previous years.