Zinc concentrate TCs are expected to fall back to the beginning of the year levels! Why such a rapid decline?[SMM Analysis]

SMM November 28 News:

As of November 28, the average SMM domestic zinc concentrate TC was recorded at 2,050 yuan/mt in metal content, and the SMM imported zinc concentrate weekly index stood at $61.25/dmt. Overall, the current zinc concentrate TC has decreased by 600 yuan/mt MoM from early November, with the November imported zinc concentrate index down $33.47/dmt MoM. Both domestic and international processing fees have significantly declined, with domestic TCs about to return to the start-of-year level. Why did the processing fees drop so rapidly in November? When will the turnaround come? Let's analyze this from a supply and demand perspective.

Regarding domestic processing fees, winter is traditionally a season for reduced production of domestic zinc concentrates. Currently, at the end of November, mines in Tibet, Qinghai, and other regions have started to shut down. The output of domestic zinc concentrates in November and December has consecutively decreased, impacting the market supply of zinc concentrate. Additionally, although the SHFE/LME price ratio in November improved compared to October, the loss on importing zinc concentrates remains around 2,000 yuan/mt. Considering economic factors, smelters continue to actively purchase domestic zinc concentrates. In the context of a tight domestic concentrate market, some traders have a strong sentiment towards stockpiling, leading to a greater willingness to lower processing fees. Under the influence of multiple factors, the domestic zinc concentrate TCs in November and December have accelerated their decline.

For imported processing fees, the decrease in November exceeded market expectations. On one hand, it is the time for winter stockpiling, and smelters' demand for zinc concentrates is robust. Traders continuously lowered their offers for imported zinc concentrates. Moreover, as the SHFE/LME price ratio improved in November, the shortage of domestic zinc concentrates became more severe. Some smelters, to maintain normal operations, showed an improved interest in inquiring and purchasing imported zinc concentrates. The increase in demand led to a rapid decline in imported zinc concentrate TCs, and it is expected that the imported TCs will continue to fall in December.

Looking ahead, according to SMM calculations, smelter losses gradually expanded in Q4. Currently, the profit of smelters, excluding sulphuric acid and by-products, has already dropped to over 1,000 yuan/mt. In November, some smelters cut production due to this. As the processing fees continue to decline in December, it is anticipated that more smelters will undergo maintenance and reduce production. Coupled with the regular maintenance shutdowns during the Chinese New Year, the demand for zinc concentrate from smelters may weaken. However, considering that many domestic mines resume production in March and April, if there is no significant reduction in smelter output, the probability of a continued tight supply of domestic zinc concentrates in Q1 next year is high.

(The above information is based on market collection and comprehensive evaluation by the SMM research team. The information provided in this article is for reference only. This article does not constitute direct advice for investment research and decision-making. Customers should make cautious decisions and should not replace their independent judgment with this information. Any decisions made by customers are not related to SMM.)