You are here

China smelters face lowest fees in 4 yrs as zinc market tightens

18_39456855.1 (39457338) - 13_08_2016 - THAILAND BOMB ATTACKS.jpg
China's huge zinc smelting industry has slashed its fees for turning ore concentrates into refined metal by 20 per cent as competition for dwindling global mine output heats up, industry sources said this week.

[MELBOURNE] China's huge zinc smelting industry has slashed its fees for turning ore concentrates into refined metal by 20 per cent as competition for dwindling global mine output heats up, industry sources said this week.

The move could signal an impending squeeze in refined zinc supplies and a further run-up in prices that have already gained 40 per cent this year, because smelters typically lower their treatment charges (TCs) to attract raw material when ore supplies decline.

Spot treatment charges have slipped to US$100-US$110 a tonne, down by about a fifth since February, four industry sources said, nearing a four-year low.

The fall-off came after huge mines such as Century in Australia and Lisheen in Ireland ran dry. Global commodities giant Glencore and Belgium's Nyrstar also slashed mine output when zinc prices slumped to a 6-1/2-year-low in January due to slowing demand in China.

Market voices on:

"Even if we allow for a major correction in Q1 2017 triggered by Glencore/Nyrstar capacity restarts, we think a 680,000 tonne (refined metal) deficit over (2017) will propel prices to an average of US$3,900 a tonne by Q4-17, on route towards record highs in 2018," ICBC Standard Bank said in a research note this week. That would equate to a 70 per cent rally from levels around US$2,290 a tonne now.

The mine closures and output cuts have been exacerbated in recent months by a spree of smelter shutdowns by environmental inspectors in China.

ICBC expects zinc prices to surge more than 20 per cent by year-end to US$2,750 a tonne from around US$2,250 currently. The catalyst for the next leg up will be any signs of falling global stocks of the metal, such as rising premiums paid on top of market benchmarks for physical delivery.

Traders in Asia said, though, that so far there is no issue finding metal, with China zinc premiums ZN-BMPBW-SHMET wallowing around US$115, the weakest in one year.

That means the recent gains in zinc prices have come mostly on the prospect of smelters producing less and the expectation that no new zinc mines are starting up anytime soon.

LME stocks surged by 21 per cent to around 460,000 tonnes from seven-year lows in early June. But Shanghai inventories have dropped by a quarter to just shy of 200,000 tonnes, still more than double levels seen at the start of last year.

With treatment fees so low, it is not clear how long smelters can hold out before having to cut output. Analysts estimate they hold some one to two months of concentrate supply and that fees can drop further, especially as mines in the north close ahead of winter.

"That's when we'll really see the crunch start to hit," said a source at a global trade house in Shanghai.

Already, environmental mine closures in China's Hunan province since the start of August come to some 150,000-200,000 tonnes of annual refined zinc supply, forcing local smelters in Hunan, to outsource for ore, a China-based fund source said.

"The smelters should be losing money at these TC levels and should finally start cutting from here," a trader said.

China's leading zinc smelters vowed in November to reduce 2016 production by 500,000 tonnes, equivalent to almost a tenth of their output. But a large scale cut has yet to appear, China state-backed researcher Antaike said.

China produced some 6.15 million tonnes of refined zinc last year, although production growth has stalled this year. In July, its zinc output grew just 0.4 per cent compared with a year ago to 506,000 tonnes.

"Refineries are actively seeking for raw materials with the increasingly tight concentrate supply. In the second half, domestic (mine) supply will increase, but refining capacity will also grow, thus those refineries with poor raw material supply might be forced to cut output," Antaike said in a report.



Receive $80 Grab vouchers valid for use on all Grab services except GrabHitch and GrabShuttle when you subscribe to BT All-Digital at only $0.99*/month.

Find out more at

Powered by GET.comGetCom