Why Are Die-Casting Zinc Alloy Processing Fees Rising Under Pressure?

SMM News November 12:

According to the latest SMM data, as of November 7, the average processing fees for Zamak 3 and Zamak 5 zinc alloys in Guangdong, Zhejiang, and Jiangsu have climbed to 675 yuan/mt and 1,225 yuan/mt, respectively. Quotations in Fujian also rose to 575 yuan/mt and 1,175 yuan/mt. The main reason for this price increase lies in changes in raw material costs.

So what exactly caused the price rise?

First, the main metallic components of die-casting zinc alloys are zinc, aluminum, and copper. Taking Zamak 3 as an example, its zinc content exceeds 92.29%, and aluminum content exceeds 3.9%; while Zamak 5 contains approximately 95% zinc, 4% aluminum, and 0.9% copper. Therefore, changes in the price spread between zinc and aluminum or copper directly determine the production cost and processing fees of the alloys.

Examining the zinc-aluminum price spread, since Q2 this year, aluminum prices have risen unilaterally, while zinc prices have fluctuated relatively mildly, leading to a continuous narrowing of the zinc-aluminum price spread. This directly pushed up the production cost of Zamak 3. According to SMM calculations, the theoretical net profit for producing #3 alloy dropped significantly from around 300 yuan/mt at the beginning of the year to approximately 150 yuan/mt currently.

Furthermore, from the zinc-copper price spread perspective, copper prices surged to a decade high this year, causing the zinc-copper price spread to widen sharply. This has resulted in more significant cost pressure for Zamak 5, which has a higher copper content. The net profit margin for enterprise production has narrowed from around 400 yuan/mt at the beginning of the year to less than 100 yuan/mt currently.

Under strong price pressure, die-casting zinc alloy enterprises have raised processing fees due to raw material cost pressures.
However, overall consumption in the current die-casting zinc alloy market remains pessimistic. According to SMM data, China's operating rate for die-casting zinc alloy in September was only 42.99%, down 4.02 percentage points YoY. Against the backdrop of sluggish demand, raising processing fees has proven particularly challenging. Meanwhile, SMM learned that the market's adjustment to prices was relatively small, with overall increases for #3 alloy processing fees ranging from 50 to 100 yuan/mt, and #5 alloy adjustments ranging from 100 to 150 yuan/mt. Additionally, some enterprises have not adjusted their processing fees recently, mostly those with initially higher pricing or other profit sources to offset costs.

Looking ahead, the off-season expectations suggest that consumption is unlikely to improve. Coupled with the ongoing impact of smelters' low-priced alloys on private alloy plants, the likelihood of a significant increase in TCs remains low. However, if the price spreads between zinc-aluminum and zinc-copper continue to compress enterprise profits, cost support for standard alloys will strengthen, and TCs may still be raised passively. SMM has also learned that some enterprises have begun increasing the use of scrap in their formulations to produce non-standard alloys in order to control costs. SMM will continue to monitor the market closely.