Japan Emergency Lifts China Zinc Export Premium

Japanese imported zinc premium surges when Japanese major trading firms and smelters try to secure the metal to cover lower domestic supply capacity under damage by the major quake. Chinese export premiums is now around US$ 200 per tonne from former US$ 50.

Japanese zinc smelters stopped operation at Mitsui Mining & Smelting’s subsidiary, Hachinohe Smelting in Aomori, Dowa Holdings group’s Akita Zinc in Akita and Toho Zinc’s smelters at Onahama in Fukushima and Annaka in Gunma. They try to shift the production to plants in western Japan but the shift could take time due to raw materials availability.

Japanese trading firms started the alternative sourcing activity since early last week to get zinc from Chinese suppliers. Some of the cargoes apparently arrived in Japan. Japanese smelters and integrated steel makers also started the procurement since late last week to secure zinc. A source estimates the order from Japan to traders with inventory in Shanghai was total several thousands tonnes while Japanese zinc import decreased to annual 20,000 tonnes level in 2009 and 2010 from 30,000-40,000 tonnes before. Such immediate order increased the premium.

Japanese buyers could import from other warehouses registered to London Metal Exchange. The warehouses hold 730,000 tonnes of inventory, which is the highest level in 6 and half years. Asian inventory is easy for Japanese buyers due to the 2 weeks lead time from Malaysia. Japanese trading firms try to seek alternative source to secure additional zinc supply when Chinese inventory could be sold out in April.