TC Rebounds: Is the Zinc Concentrate Market About to Reverse? [SMM Analysis]

According to SMM data, as of November 1, the weekly average TC for SMMZn50 rebounded to 1,500 yuan/mt (metal content), ending a 12-month decline. What caused the rebound in TC? Is the market for zinc concentrate about to reverse?

Supply side, despite the new production from Huoshaoyun in July bringing additional volume, the decline in raw ore grade in some mines in north China has continued to affect the market this year. According to an SMM survey, from January to September this year, the production of SMM zinc concentrate increased by 1.01% YoY, with limited growth in domestic ore production. In October, domestic mine disruptions persisted, and there was no significant improvement in domestic ore supply. However, since October, inventory at seven ports monitored by SMM has increased, and the circulation of imported ore has increased slightly, providing some supplementation to the supply of zinc concentrate.

Demand side, in September, domestic zinc ingot production increased by 2% MoM, slightly higher than market expectations. SMM also expects limited growth in refined zinc production in October, with continued low demand for raw material procurement. Smelters continued to purchase zinc ore under low operating rates, with raw material inventory levels at smelters slightly increasing to 15.6 days in September, showing the effectiveness of production cuts.

Additionally, zinc prices hit a new high for the year in October, and mine profits continued to rise. Coupled with the gradual improvement in raw material inventory at some domestic smelters, the overall market sentiment was bullish. Some smelters negotiated with mines to increase domestic TCs, leading to a slight rebound in TCs in many regions in October.

Looking ahead, with the seasonal reduction in mine production and the arrival of winter stockpiling by smelters in the fourth quarter, the tight domestic ore situation is expected to persist, and the increase in TCs this year is expected to be slow. Next year, with the successive commissioning of overseas mines such as Oz and Kipushi, as well as domestic mines like Huoshaoyun and Yinzhushan, the market expects a global increase in ore supply of over 500,000 mt. The inflow of imported ore into the domestic market may improve compared to this year. However, with domestic smelters like Wanyang and Yunnan Copper planning to add new capacity, the demand for raw materials will also increase. Whether the domestic ore supply situation will improve next year will depend on the capacity release from newly commissioned mines.