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Zinc supply shortage puts pressure on smelters

Metal News - Published on Mon, 12 Feb 2018

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Investing News reported that zinc smelters are on track to accept lower processing fees for concentrate as an increasing mine supply shortage continues to hit the market. Sources told Reuters that treatment charges, the fees miners pay smelters to process their ore, are likely to fall by at least 13% to USD 140 to USD 150 a tonne or below for 2018 term contracts, from around USD 172 a tonne last year.

Major smelters are expected to settle processing fees with miners at the International Zinc Association conference next week.

Ms Dina Yu analyst at consultancy CRU Group said that “We forecast TCs at USD 150 this year because concentrate is still very tight.” She said that “We think the price-peak will appear in Q2 and then prices will retreat from Q3, due to recovering zinc concentrate and metal stocks.”

Last month, TCs in spot markets hit a record-low of USD 10 a tonne, despite many miners taking advantage of the zinc price rally to ramp up operations.

A trader said that “TCs should have started turning. It seems the view now is that the ‘wall of supply’ is taking longer to materialize and could be in the lower-range of estimates.”

In fact, many analysts believe the market will continue to be tight at least for the first half of 2018 due to a lack of new mine supply and declining warehouse inventories.

Supply worries have pushed prices up, with LME zinc prices increasing over 25 % year-on-year. However, smelters have not benefited from the price rally, as they agreed to accept zero exposure to price movements.

Traders said that for smelters to claw back this term they may have to accept much lower baseline fees.

Wood Mackenzie said that looking ahead, zinc mine supply is forecast to grow by 664,000 tonnes this year, following an estimated increase of 785,000 tonnes in 2017.

The firm said last month that “However, the extremely strong growth in mine supply in 2017 and 2018 is insufficient to replenish global stocks of concentrate which are forecast to remain at critically low levels.”

As a result, Wood Mackenzie expects a deficit of 350,000 tonnes this year and 150,000 tonnes in 2019. Meanwhile, the International Lead and Zinc Study Group expects a refined metal deficit of 223,000 tonnes in 2018.

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Posted By : Amom Remju on Mon, 12 Feb 2018
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