Zinc Calcine TC Plummets to Historic Low, How Will It Move Next? [SMM Analysis]

SMM News, November 4:

Low-grade zinc oxide prices continue to rise, while zinc calcine TC is falling at an accelerated pace. What are the reasons behind this trend, and when will excessively high raw material prices begin to decline?

From the raw material perspective, in recent years, due to declining profits, many steel mills have considered cost reduction and efficiency improvement, leading to the secondary utilization of dust and ash, which has resulted in a decline in the grade of zinc raw materials. Some regions also require that hazardous and solid waste not leave the factory, increasing the amount that steel mills must handle themselves. Meanwhile, environmental protection-driven production restrictions in Tangshan began on October 27, with blast furnace production limited by 30%, and the restrictions ended on November 1, further tightening raw material supply. Henan also issued an environmental protection alert on November 4, which may impose controls on enterprise production. As the northern regions are gradually affected by polluted weather, the raw material supply situation has become even tighter.

Supply side, raw material shortages impacted enterprise production, leading to a decline in low-grade zinc oxide output. In October, zinc prices remained low, resulting in unfavorable profits for low-grade zinc oxide enterprises, with some showing reluctance to sell. Low-grade zinc oxide payables stayed high. Internationally, the unfavorable SHFE/LME price ratio this year reduced import profits for low-grade zinc oxide, leading to fewer imports and an overall shortage throughout the year. High-grade, quality low-grade zinc oxide was particularly scarce. In November, zinc prices rebounded, increasing low-grade zinc oxide enterprises' willingness to sell. However, with supply far below demand, sellers gained stronger pricing power. For zinc calcine producers, the overall shortage of low-grade zinc oxide affected raw material purchases, causing some to halt production due to supply issues. Overall zinc calcine production decreased YoY. Additionally, many zinc calcine enterprises extended their industry chain by adding electrolysis zinc production lines, mostly for internal use, reducing market availability and further tightening zinc calcine supply.

Demand side, low-grade zinc oxide, as a raw material for zinc ingot, zinc calcine, and zinc oxide, sees strong demand, and persistently tight supply continues to drive up its prices. In Q3, zinc concentrate TCs accelerated their decline, and tight ore supply led to an increase in demand for zinc calcine, while zinc calcine supply also remained relatively tight. In October, the price increase for zinc calcine was relatively small, with some zinc calcine enterprises experiencing poor profitability. By November, zinc calcine supply became tighter, strengthening sellers' bargaining power. Overall, the zinc calcine payables in north China reached around 77%–78%, while in south China, they rose to approximately 79%–81%.

In November, low-grade zinc oxide and zinc calcine prices are expected to remain high. However, some secondary zinc enterprises have production cut plans due to high raw material costs, and demand is anticipated to drop back slightly in the subsequent period, which will likely curb the prices of low-grade zinc oxide and zinc calcine.