News: NYR Zinc stocks slide as shortages in Europe persist

• Lower zinc prices may squeeze producer margins further -AMT
• Premium for cash over 3-month zinc contract at 1-month high

Zinc stocks in London Metal Exchange (LME) approved warehouses are at their lowest in more than two years due to shortages in Europe where record-high power prices have led to production cuts of the metal used to galvanise steel.

European power prices have been rising since late 2020, but upward momentum picked up this year due to worries about gas supplies from Russia after it invaded Ukraine.

Reinforcing these concerns was a cut in Russian gas deliveries on the Nord Stream 1 pipeline into Germany on Wednesday.

"European zinc producers face more pain after reduced gas flows from Russia through the Nord Stream pipeline triggered a fresh surge in regional natural gas prices this week," said Tom Mulqueen, analyst at Amalgamated Metal Trading (AMT).

"Higher energy prices and June's pullback in zinc prices may squeeze margins and further constrain regional zinc smelter output. However, a sustained fresh spike in European energy prices would also exacerbate regional inflationary pressures, adding to fears of a regional demand slowdown."

Stocks in LME warehouses MZNSTX-TOTAL at 79,575 tonnes are at their lowest since April 2020, while cancelled warrants -- metal earmarked for delivery -- at 26% indicate more zinc is due to be delivered out.

This combined with large holdings of zinc warrants and cash contracts has again fuelled worries about supplies on the LME market and created a premium for the cash over the three-month contract CMZN3 0#LME-WHL 0#LME-WHC .

The premium of around $59 a tonne is at its highest since April 28 and compares with $1 a tonne a month ago.

Benchmark zinc CMZN3 at around $3,600 a tonne is down more than 25% since hitting a record high of $4,896 a tonne in March.

Before producers such as Glencore GLEN.L and Nyrstar NYR.BR cut output, Europe typically accounted for 15% of global zinc supplies estimated at 14 million tonnes this year.