What Will Happen to Processing Fees of Zinc Calcine with a New Round of Negotiations Kicking Off?

SHANGHAI, Jan 6 (SMM) - The shortage of zinc concentrate in the first half of 2022 put zinc calcine under the spotlight and it began to develop in full swing. However, with the inflow of imported zinc ore in the second half of the year, the shortage of domestic supply was alleviated, which suppressed zinc calcine enterprises to a certain extent. As a result, the processing fees were raised. So what will happen to the zinc calcine processing fees in the near future?

On the supply side, the shortage of electric arc furnace dust persisted, which indicates that in the long run, zinc calcine enterprises will continue to face a lack of raw materials. On the other hand, due to the recent poor demand, the sales of zinc hypoxide stagnated in some areas and its price coefficient dropped. At the same time, zinc prices were on the decline in the second half of December, and the prices of zinc hypoxide dropped following the trend, triggering procurement on dips. Even though some zinc calcine enterprises already stopped production, they still purchased zinc hypoxide when its prices were acceptable in order to stock raw materials for the production in a new year. In this case, the raw material shortage of some zinc calcine enterprises may ease in the short term. However, the zinc calcine companies also planned to take early holidys amid poor orders. Thus, the supply of zinc calcine is expected to slip.

On the demand side, customs data show that the imports of zinc concentrates reached 449,000 mt in November, 2022, an increase of 21.9% year-on-year, and a YTD increase of 9.15%. The growth of zinc concentrate imports guaranteed sufficient raw materials for domestic smelters. The TCs for zinc concentrates were raised further after the new negotiations completed, with smelters still having the upper hand. The TCs for domestic zinc concentrate in some areas have reached as high as 5,700 yuan/mt, and the TCs for imported ore also stabilised at $265/mt. Generally, smelters will receive considerable profits when using zinc concentrates in production. In the context, the demand for zinc calcine from smelters has declined, and the purchase volume of zinc calcine will diminish in January. At the same time, some secondary zinc plants using zinc calcine as raw materials to produce refined zinc have not set specific holiday arrangement for the Chinese New year, thus the demand for zinc calcine will further sink. On the whole, the overall demand for zinc calcine will trend lower.

To sum up, the recent demand for zinc calcine from zinc smelters is not strong, and the production of some zinc calcine enterprises is about to halt with the upcoming holiday. As such, the supply and demand of zinc calcine have been both weak. However, the last round negotiations on TCs for zinc concentrates ended with the overwhelming victory of the zinc smelter, which means that the increase in TCs will narrow the profits of zinc calcine companies. Moreover, zinc smelters were restrained in purchasing zinc calcine, thus it is expected that the zinc calcine processing fees will not change much.