The increase in zinc concentrate TCs slowed significantly in May. Are TCs about to peak? [SMM Analysis]

SMM April 29 News:

In May, SMM's domestic monthly zinc concentrate TCs rose by 50 yuan/mt MoM to 3,500 yuan/mt, while the monthly TCs for imported zinc concentrate increased by $5/dmt to $45/dmt. The current period coincides with the peak negotiation period for domestic zinc concentrate TCs in May. However, negotiations between the two parties have been at a standstill. Compared to earlier months this year, the increase in domestic zinc concentrate TCs in May has slowed significantly. Some enterprises in the market believe that domestic TCs may be about to peak. What is the actual situation? SMM conducted an analysis of the supply and demand situation of zinc concentrate:

Firstly, from the supply side of zinc concentrate. According to SMM, the first half of the year is the conventional season for domestic mine production resumptions. Based on seasonal patterns, domestic zinc concentrate production is expected to continue to recover MoM in March, April, and May, with domestic zinc concentrate supply continuing to increase in May. Regarding imported ore, according to data from the General Administration of Customs of China, China's cumulative zinc concentrate imports from January to March reached 1.2178 million mt, up 36.62% YoY, basically maintaining the import level of Q4 last year. With the continuous inflow of imported zinc concentrate ordered by smelters in the early stage, the volume of imported zinc concentrate in April and May may still be sustained.

Secondly, from the demand side. With the rapid rebound in domestic zinc concentrate TCs and the increase in sulphuric acid prices, some smelters began to achieve small profits from March onwards, significantly boosting their production enthusiasm. As a result, domestic refined zinc production increased significantly MoM in April. Entering May, although some enterprises plan to conduct maintenance, with the gradual commissioning of Yunnan Copper, Wanyang, and others, the overall demand for zinc concentrate in May may not decline significantly.

Additionally, from the perspective of miners' profits. Despite the rapid increase in domestic zinc concentrate TCs in Q1, domestic miners' production profits in March still remained at approximately 6,000 yuan/mt (metal content), maintaining a relatively high level. In April, zinc prices declined significantly MoM, reducing domestic zinc concentrate enterprises' profits by approximately 1,000 yuan/mt (metal content). Due to compressed profits, domestic miners have low willingness to raise zinc concentrate TCs in May.

In summary, although some smelters will conduct maintenance in May and smelters' sentiment to stand firm on quotes persists, considering profit factors, miners have a strong willingness to keep zinc concentrate TCs flat in May. Under continuous negotiations between the two parties, the increase in zinc concentrate TCs in May compared to April is limited. Looking ahead, despite significant overseas zinc concentrate increments this year, there are no obvious increments in domestic zinc concentrate except for Huoshaoyun. Moreover, with improved profits, smelters have high production enthusiasm, and new smelters commissioned in Q2 in China are also gradually ramping up production. Under the dual increase in supply and demand, the potential for future increases in domestic zinc concentrate TCs may be limited. Attention should be paid to the subsequent inflow of imported zinc concentrate.