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RPT-Zinc premiums in SE Asia triple as financing demand picks up
* Zinc premiums at $100-$120 in Singapore vs $40-$50 in early Aug
* Premiums quoted at $70-$80 in Malaysia, vs $15-$20 in early Aug
* Three-month wait to collect zinc from Johor LME warehouse
* Zinc stocks in Singapore, Klang depleting
By Carrie Ho
SHANGHAI, Aug 31 (Reuters) - Zinc premiums in Southeast Asia have tripled this month as traders lock away more metal as collateral for short-term financing deals, with supply already hit by a long wait for delivery at key London Metal Exchange warehouses in the region.
A change this month in zinc's forward curve structure to a contango, where spot material costs less than for delivery further forward, has raised the allure of using the metal for financing, traders said.
They quoted zinc premiums paid on top of LME cash prices at $100-$120 a tonne in warehouse in Singapore, up from $40-$50 in early August. In Malaysia, premiums were quoted at $70-$80, up from $15-$20 in early August.
Three month zinc traded at a premium of $24.75 against the cash contract on Thursday, a one-year high it first hit in mid August and up from a $4 discount in July.
"Premiums perhaps reflect the difficulty in sourcing readily available units given long exit queues at other locations in the region such as Johor. I don't think demand has turned a corner," said Standard Bank analyst Leon Westgate.
Low interest rates and global oversupply of metals after the 2008-2009 financial crisis have made financing deals steady earners.
Warehouses and their owners - like JP Morgan, Glencore and Goldman Sachs - have stepped up raids on each other's stocks, resulting in large movements of metal that are not explained by fundamental factors.
Large scale warrant cancellations have led to low availability of stocks in three Asian ports approved by the LME for zinc storage, further fuelling the boost in premiums. Some 77,000 tonnes of LME warrants were cancelled, or scheduled for delivery, out of Port Klang sheds in late June.
"We doubt the recent surge in cancelled LME zinc warrants has anything to do with physical demand; more likely, it represents a shuffling of the deck of inventory held in financing deals," BNP Paribas said in a note in early July.
LONG WAIT AT JOHOR
In Malaysia's port of Johor, traders complain of months-long queues to get zinc. LME data shows one player controls between 50-80 percent of global LME stock.
"Zinc premiums in warehouse are roughly around $100-120 in Singapore, but really, nothing has been available for the past few weeks. The only alternative is to join the queue in Johor and wait for three months to collect the metal," said a Singapore-based trader.
Outside Johor there is only 22,925 tonnes of zinc in LME warehouses in the region, a quarter of the total.
Stock in Singapore, a prized location due to its proximity to freight routes, hit a 4-1/2-year low of 925 tonnes this week.
Regional premiums could rise further if an expected fourth quarter pick up in demand from top consumer China materializes.
China is the world's top zinc consumer, accounting for 5.2 million tonnes of demand last year. Appetite for zinc is expected to improve after Beijing said in May it would speed up infrastructure investment.
In the first seven months this year China imported 251,421 tonnes of refined zinc, up about 37 pct from a year ago.
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