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Nyrstar Smelter Outage Hits London Lead Market

Metal News - Published on Mon, 17 Jun 2019

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Reuters reported that the outage of Nyrstar’s Port Pirie lead smelter in Australia has injected a rare bit of excitement into the London lead market. London Metal Exchange three month lead rose to a one-month high of USD 1,918.50 per tonne as news filtered into the market on June 6. That was mild relative to the reaction in LME time-spreads, which contracted to their tightest levels in two years, suggesting a scramble to realign positions.

The Belgian company, which is in the midst of a capital restructuring that will cede control to trade house Trafigura, has declared force majeure on deliveries from Port Pirie. It hopes to have the smelter back up and running by the end of this month.

Trafigura and the broader lead market can only hope that Nyrstar meets that time-line, since this supply hit has served to expose an underlying tightness in metal availability that has been masked by recent price weakness.

LME lead has been on the back foot since late February, when it recorded its year to date high of USD 2,179.50 per tonne. The slide bottomed out at USD 1,773.50 in the middle of last month but with little upside impetus until the Port Pirie news.

All the LME-traded base metals have been under selling pressure as macroeconomic fears override individual market dynamics but lead has been the weakest performer of all.

That’s in large part due to its supporting role in the ever-popular relative-value trade with “sister” metal zinc. If funds trade lead at all, it is to sell it while buying zinc.

The resulting dead weight on the lead price helps explain the modest reaction in outright price to the Port Pirie outage.

The real impact has been manifest in time-spreads, which started moving sharply on June 5 and have been volatile ever since.

The benchmark cash-to-three-months spread closed the prior week valued at a benign contango of USD 10.50 per tonne. By the close of June 5 it had flipped to a punishing backwardation of USD 39.00. As of Tuesday’s close, the cash premium had widened further to USD 42.50, which is the tightest it’s been since the first quarter of 2017.

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Posted By : Ratan Singh on Mon, 17 Jun 2019
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