London’s metal traders are still reeling from the historic squeeze in nickel a month ago, but they may not get much time to recover — inventories across the exchange’s warehouse have dropped to perilously low levels, raising the threat of further spikes in everything from aluminum to zinc.
The available stockpiles across the six main contracts on the London Metal Exchange have plunged to the lowest on record in data going back to 1997. Goldman Sachs Group Inc. warned that copper is “sleepwalking towards a stockout,” while freely available zinc inventories shrank by more than 60% in less than three weeks as Trafigura Group booked out large volumes. Nickel itself remains at risk of further turmoil.
“It seems as though we’re facing a new squeeze every week on the LME at the moment,” Michael Widmer, head of metals research at Bank of America Corp., told Bloomberg by phone from London.
In the zinc market, Trafigura is withdrawing significant volumes of metal to make up for a shortfall in its own supplies after production cuts in Europe, people familiar with the matter said. Orders to withdraw zinc from LME warehouses have jumped by more than 45,000t since the end of March, drawing available stocks of the metal down to the lowest in more than a year.
Copper — which is already trading near an all-time high — will also be vulnerable to further spikes as inventories decline, Goldman said on Thursday.
“Copper is sleepwalking towards a stockout,” analysts led by Nicholas Snowdon said in an emailed note, referring to the risk that inventories will be depleted entirely. “We believe higher prices are an inevitability — required to stimulate substantially more scrap supply as well as accelerate demand destruction to balance this market.”