SMM Analysis on Slump in TCs for Zinc Concentrates

SHANGHAI, Mar 31 (SMM) - Since the end of February, the TCs for domestic zinc concentrates has dropped from 5,600 yuan/mt in metal content to around 5,100 yuan/mt in metal content, while the TCs for imported znic concentrates also retreated from $260/dmt to $220/dmt, both showing a rapid decline.

According to customs data, the cumulative imports of zinc concentrates totalled 900,000 mt in metal content in January-February, an increase of 30% year-on-year.

How come TCs continue falling amid a surge in the imports of zinc concentrates? Will such a downward trend persist? Here is SMM’s analysis.

Generally speaking, the increase in the zinc concentrate output of domestic mines will not be substantial this year on the grounds of high costs, falling ore grade and historical records.

Taking into account the new capacity and the production recovery from the covid-19, SMM estimates that domestic new output of zinc concentrates will be 50,000-80,000 mt in metal content in 2023.

At the same time, the overseas zinc concentrate output is forecast to add by 130,000-150,000 mt in metal content based on the service life of mines, ore grade, geopolitical conflicts and community protests.

Altogether, it is estimated that the increase in global zinc concentrate output will be roughly 200,000 mt in metal content this year.

In terms of zinc ingots, the new and expanded capacity at Chinese zinc smelters will put the total domestic output increase at 350,000-400,000 mt throughout the year. As such, the zinc ore supply will fall short of the demand.

As for the recent tumble in TCs, it is driven by several factors.

On the one hand, the falling electricity prices in Europe boosted the profits of zinc smelters to about $500/mt, which propelled some European smelters to resume production. As a result, the growing overseas output of zinc ingots gave rise to bearish sentiment on domestic zinc concentrates.

On the other hand, the Chinese zinc smelters basically ran at high capacity or overcapacity in pursuit of hefty profits, allowing the output to reach a historical high of around 560,000 mt. Although the zinc ingot output in April and May is on pace to decline, it will still stand high. Therefore, the potential increase in the demand for zinc concentrates has exacerbated its shortage.

At the same time, despite a slight rally in the SHFE/LME zinc price ratio, the import window of zinc concentrates remained closed. Some traders thus refrained from selling considering the late arrival of forward goods.

In addition, domestic smelters in Yunnan, Guangxi, Sichuan and Shaanxi are already dependent on imported zinc concentrates. When faced with shortages of domestic zinc concentrates due to seasonal factors, they scrambled to purchase imported decent zinc concentrates at ports. The falling TCs in these region eventually resulted in a significant decline in average TCs.

On the whole, it is expected that the import volume of zinc concentrates in March will still be high. However, since the persisting closed import window will discourage traders from selling, and the latest quotes and transaction prices of TCs still trend lower, the following TCs are still inclined to drop further.