What is behind falling zinc concentrate TCs amid continuous supply tightness to China?

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.

Fastmarkets assessed the zinc spot concentrate TC, cif China at $30-50 per tonne on April 26, down from $250-280 per tonne on January 13, 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.

Meanwhile, the industrial benchmark – the TC in the annual supply contract between Canadian miner Teck Resources and smelter Korea Zinc – was settled at $165 per tonne for 2024, down from last year’s $274 per tonne, indicating a tightening zinc concentrate market across the globe.

Mine closures reduce concentrate output

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, Fastmarkets reported.

The most notable case is Swedish miner-smelter Boliden’s Tara mine – Europe’s largest zinc mine – in Ireland.

The mine outputted 198,000 tonnes of concentrate in 2022, but it has been “fully under care and maintenance” since July 2023 and produced no zinc in the fourth quarter. Tara’s milled volume decreased by 47% relative to 2022, according to Boliden’s financial statements.

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, Fastmarkets analyst James Moore said.

Market participants are keeping a close eye on when closed mines are expected to come back online in 2024, Fastmarkets learned.

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.

“The reduction of [the mine’s cash costs] is attributed to an improved outlook on the price of energy, as well as lower benchmark [TCs], coupled with improved productivity,” Boliden said.

The LME three-month zinc price closed at $2,478.50 per tonne on April 2 and soared to over $2,908 per tonne on Friday, up by over 17% in a month.

The strong uptick in the zinc price in April could improve mines’ margins, but there was still doubt on whether the recent price spike could be sustained.

“The LME is volatile at the moment,” a miner source told Fastmarkets, adding that price increases would need to be sustained to help miners.

Production issues at major mining areas

In the first quarter, production issues in some major mining areas – such as Australia, Africa and South America – have caused delays in concentrate shipments, further weighing on raw materials supply, Fastmarkets learned.

At the end of January, extreme rainfall in Australia led to the closure of the Dugald River mine’s logistics route to the port, with feedstock transportation delayed for weeks.

Meanwhile, due to stripping issues, ore production volume at Gamsberg zinc mine in South Africa dropped in February-March compared with initial plans. Cargo delivery may be delayed for about two months because the mine had to first fulfill some planned shipments, Fastmarkets learned.

The Dugald River and Gamsberg units are the main providers of mainstream feedstock for Chinese smelters, so these disruptions directly put pressure on supply to China in the first quarter, Fastmarkets understands.

Besides, declining ore grades at Red Dog and a 50% lower zinc production at Antamina mine also reduced concentrate output in 2024.

Uncertainty in start of new mine projects

Apart from production cuts at existing mines, uncertainties about the ramp-up of new mines this year added growing stress to the zinc raw material supply chain.

Due to US sanctions and a fire accident, there have been significant delays to production at Russia’s Ozernoye mine, the fifth-largest zinc mine in the world.

“The Ozernoye mine will definitely make a difference to the supply balance since it is the single biggest addition in 2024, but I heard it may not start until the fourth quarter,” a trader based in Shanghai said.

Participants pinned their hopes on another new zinc-mining project ready to enter the market in the second quarter – the Kipushi mine in the Democratic Republic of Congo (DRC) is expected to produce more than 270,000 tonnes of zinc concentrate over the first five years of operation, according to the latest financial report of Canadian miner Ivanhoe Mines.

“With overall project progress approximately 90% complete, the Kipushi concentrator is ahead of schedule for first feed in June 2024,” the report said.

Chinese smelters exposed to spot market with limited long-term contracts

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, Fastmarkets learned.

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, the situation is totally different,” a second trader said.

“For those who are in urgent need of feed, I heard 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,” a third trader said, adding that “most of us are lacking spot cargoes to offer.”

“Imported concentrates are way too expensive, and we are struggling to break even on slumping TCs,” a smelter source in Southwest China told Fastmarkets.

TCs for domestic units have also been dropping quickly, with buyers seeking domestic feeds for production.

Fastmarkets’ price assessment for zinc concentrate TC spot, delivered North China was 3,400-3,600 yuan ($469.63-497.26) per tonne on April 26, down from 3,800-4,000 yuan per tonne a month earlier.

Fastmarkets’ price assessment for zinc concentrate TC spot, delivered South China was 3,200-3,400 yuan per tonne on April 26, down from 3,600-3,800 yuan per tonne one month prior.

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.

“I don’t think the tightness will ease in the short term; at least, it will continue until the third quarter,” a fourth trader in Shanghai said.

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