Washington (Platts)--1Feb2013/342 pm EST/2042 GMT

US zinc premiums inched higher this week on what market sources say is a simple scarcity of metal.

Platts assessment for special high-grade zinc rose this week to 8.5 cents/lb plus LME cash, from a previous level of 8 cents.

"Premiums are going as high as 10, 11, 12 cents," a zinc producer told Platts. "That's for a truckload here and a truckload there that has to be there overnight. For anything steady, you're probably looking at 8-8.5 cents." He said he doubted there was significant business being done under 8 cents. "As weak as demand is, there is really no excess material around," he said. "As long as you have this concentrated effort to keep material [in LME warehouses] as long as possible, you'll be in this mode. We had 10,000 mt [of zinc] show up in New Orleans in three days; that could have gone into the US market, but instead, it's sitting in the LME."

A zinc consumer seemed to back up the producer's assertions. "I'm anticipating needing more metal in February and March and I bought some to test the waters and see who has what. A couple of them are telling me they don't have any metal units available."

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The consumer said a lot of SHG buyers didn't lock in metal in full-year contracts for 2013 because they balked at sellers' quotes at 8-8.5 cents and decided to take their chances in the spot market. "But now, [sellers] are ambushing everybody on the spot market," he said. The consumer said he may need to buy up to 1 million lb of SHG in February and expects to buy at under 9 cents.

A zinc trader said he had inventory on hand, but "not as much as we'd like. The physical market seems to be a little tight." The trader said he's not currently selling to warehouses but added that that option would likely command a similar premium to what he currently gets from consumers. But consumers often want to haggle over a quarter of a cent or so. "It's kind of dicey; do you go for the money, or do you go for the long-term commitment [with consumers]" the trader said. He said he would quote 9 cents for truckload quantities for Midwest delivery, and put recent transactions in wide range of 8-12 cents. "If someone needed material tomorrow and they were at a lousy freight point, I'd [quote] 12 cents," he said. Asserting that LME warehouses continue to block physical material from the market, the trader said, "The zinc market has become the aluminum market," adding that zinc premiums could conceivably rival current aluminum premiums of 11 cents if demand improves.

Am alloyer said he's still able to buy SHG at 8 cents, but even that level -- like the under-7-cents transaction -- is getting increasingly rare. "One [seller] can't get us anything at 8 cents," he said. The alloyer said he was able to buy roughly 200 mt of SHG for February.

Another zinc producer said he hasn't sold any spot material below 8 cents in the new year. The producer said truckload quantities are being done above 9 cents.

In the Alloy No. 3 market, premiums nudged up to 18.5 cents/lb plus LME cash, as market sources have continued to say they're quoting -- and selling -- at higher levels, with the high end of the range edging toward 19.5 cents.

An alloyer said he sold he sold truckload quantities at 18-18.5 last week and was quoting in that range this week. Another alloyer also said he is closing spot deals at 18 cents. However, a third alloyer said his range remains at 17-18 cents.

--Edited by Richard Rubin, richard_rubin@platts.com

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