By Andy Home

LONDON, Nov 4 (Reuters) - Zinc and lead are both in short supply on the London Metal Exchange (LME).

Headline zinc stocks of 53,875 tonnes are back at April levels, while “live” tonnage of 27,800 tonnes is the lowest it’s been in at least 20 years.

Lead stocks are a little higher at 70,075 tonnes but have failed significantly to rebuild from July’s decade low of 55,475 tonnes.

Unsurprisingly, both LME contracts are experiencing time-spread tightness.

Zinc closed last week with cash metal commanding a $61-per tonne premium over metal for three-month delivery. Lead’s front-month curve structure is also in backwardation to the tune of $7.25 at Friday’s close.

The sister metals have defied expectations of a shift into supply surplus throughout this year and they continue to do so.

Even though both are seeing flagging demand, particularly from the automotive sector, supply bottlenecks have kept each market in supply deficit this year, according to the International Lead and Zinc Study Group (ILZSG).


Indeed, ILZSG has just widened its expected 2019 zinc supply deficit to 178,000 tonnes from an assessment of 121,000 tonnes at the Group’s last meeting in May.

That’s despite a downgrade to demand, which is now expected to decline by 0.1%, largely due to weakness in Europe, where usage is forecast to contract by 3.7% this year.

Supply, though, just hasn’t come through in the way anticipated at the start of the year.

Back in May the Group was looking for world mine production to surge by 6.2% this year, laying the ground for a 3.6% increase in refined metal output.

Those forecasts have been slashed to just 2.0% and 2.5% respectively.

Mine supply has increased as expected in Australia, but the impact has been offset by sharp declines of 6.4% in Peru and 7.8% in the United States.

The anticipated rise in refined production has only really played out in China, where output is expected to lift by 7.1% this year.

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