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Spot treatment charges (TCs) for zinc concentrate in China have fallen to a one-year low on tightening supply as mines around the world shut amid government-enacted measures to contain the coronavirus pandemic.
The charges, paid by zinc miners to smelters to process concentrate into refined metal on short-term contracts, slipped to $255 a tonne on Tuesday, the lowest since April 16, 2019, according to industry pricing and information provider Asian Metal.
TCs fall when mine supply tightens and smelters have to compete harder to get concentrate to process. The charges rise when supply is abundant and mines have to offer more to get smelters to take their material.
TCs fall when mine supply tightens and smelters have to compete harder to get concentrate to process
“The concentrate supply is tight now,” said CRU Group analyst Dina Yu. “The rapid decline of TCs reflected the worries for the concentrate supply outside of China.”
The Antamina zinc mine in Peru – one of the largest in the world and co-owned by BHP Group, Glencore PLC and Teck Resources – is halting operations for about two weeks.
Production at Nexa Resources’ Cerro Lindo, Atacocha and El Porvenir mines in Peru were also suspended last month.
Peru, a major zinc producer and one of the top suppliers to Chinese smelters, has been in lockdown since March to contain the virus.
Current spot TCs are down 16% from an 11-year high of $305 at the end of February, and 15% below the annual TC benchmark reported by Fastmarkets of $299.75 a tonne for 2020 agreed by Korea Zinc and Teck Resources.
A China-based trader said he had heard of recent spot deals below $200 a tonne.
The lower concentrate supply could lead to 160,000-170,000 tonnes of annual refined zinc output being cut in China from now until the end of the year, or about 2.5%-2.7% of China’s 2020 projected output, CRU’s Yu said.
Benchmark three-month zinc prices on the London Metal Exchange have risen some 15% since March 19, when the contract hit a more than four-year low of $1,674.85 a tonne.
A Singapore-based metal trader said he had noticed a pick-up in demand from the infrastructure sector in China.
Another base metals trader with a trading house said the concentrate shortage should only give zinc prices a temporary lift due to a subdued long-term demand outlook.
Yu said the impact on supply is less than on the demand side in China’s overseas markets.
“The increase in demand from (China’s) infrastructure projects may be offset by the decline in the worsening export markets,” she said.
(By Tom Daly and Mai Nguyen; Editing by Tom Hogue)
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