07/05/2024
CHINA - WHAT IS BEHIND FALLING CONCENTRATE TCS
China imported 891,383 tonnes of zinc concentrate in January-March, down by 27.1% year on year, and the March import volume was at its lowest since May 2022, according to the latest data from China’s General Administration of Customs.
Spot treatment charges (TCs) of zinc concentrate, the fee that miners pay smelters to convert their ores into refined metal, has fallen almost continuously since the beginning of 2023.
Typically, a supply surplus of raw material leads to an increase in TCs, and a deficit leads the TCs to move down, with smelters competing for concentrate.
With the London Metal Exchange zinc price plunging to a nearly three-year low in May 2023, a string of zinc mines chose to shut down or temporarily suspend operations because costs severely eroded their profits.
Global zinc mine production fell by 1.4% in 2023, data from the International Lead and Zinc Study Group (ILZSG) showed. There will be a deficit of about 300,000 tonnes of zinc concentrate worldwide in 2024.
Market participants are keeping a close eye on when closed mines are expected to come back online in 2024.
Boliden announced on Friday May 3 that it would ramp up production at the Tara mine in the fourth quarter, reaching full production capacity by January 2025.
However, the strong uptick in the zinc price in April could improve mines’ margins, but there is still doubt on whether the recent price spike could be sustained.
Another problem is that most Chinese zinc smelters did not lock monthly supply in long-term contracts with miners or traders for 2024; instead, they are exposed to spot market for purchasing overseas feedstocks.
In China, about 70% of zinc concentrate for smelting come from domestic mines, and 30% are imported feeds.
At the beginning of 2023, when import TCs were as high as $250-280 per tonne, most smelters secured raw material supply in long-term agreements.
But this year is the situation is totally different: for those who are in urgent need of feed, deals concluded at extremely low TCs, about $10-20 per tonne for Antamina-like high copper units, and offers have even fallen to one digit.
So, imported concentrates are way too expensive, and traders are struggling to break even on slumping TCs.
Some smelters chose to cut production or conduct care and maintenance, and market participants estimated a drop in China’s monthly zinc output in April compared with March: the traders think the tightness will not ease in the short term; at least, it will continue until the third quarter.