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BASE METALS: Copper Futures Bounce On Robust Manufacturing Data

NEW YORK/HAMBURG, Feb. 17&nbsp; -- Global zinc miners will seek to slash processing fees by up to a quarter this year, as fundamentals for the worst-performing base metal show no sign of tightening soon, analysts and traders said.
The so-called treatment charges (TCs), paid by miners such as Canada's Teck Resources Ltd (TCKb.TO: Quote) to smelters who can turn the zinc concentrate into finished metal, should fall after spot market rates cheapened from 2010 levels.
The decline comes as the market for zinc, used to galvanize steel, lags far behind surging prices for other industrial metals. While peers including copper and tin face a deficit this year, zinc is in surplus as production ramped back up in the aftermath of 2008's economic downturn.
Fears of a shortage in refining capacity that allowed smelters to extract the highest annual fee in two years have failed to materialize due to a relatively abundant supply of zinc concentrate.
In initial talks between smelters and mines, mines were said to be offering $200 a tonne while smelters such as Xstrata (XTA.L: Quote) were said to be seeking $260 a tonne on based on an LME zinc price of $2,500 a tonne, traders said.
On balance, analysts expect prices to settle near $200, down from $270 a tonne last year.
&quot;There has been a wide range between spot TCs and the benchmark of last year ... that's the story,&quot; said Justin Lennon, analyst with Mitsui Bussan Commodities (USA).
&quot;The price is high enough that the zinc smelters are making good money and the spot TCs have dropped because of it. Last year's benchmark was too bearish on the outlook for zinc concentrates and is correcting to compensate the reported spot TC figures.&quot;
The state of the tiny zinc market in general -- and TCs in particular -- will be actively discussed when the industry gathers at this year's International Zinc Conference from Feb. 20 to 23, in Cancun, Mexico.
Spot zinc treatment fees had fallen throughout last year, partly because of an expansion of refining capacity in China.
&quot;So smelters seem at the beginning to expect a reduction,&quot; one European trader said. &quot;Luckily for both sides, the LME zinc price is about the same level as this time last year, so talks can be held on the basis of LME zinc at $2,500.&quot;
Michael Widmer, metals strategist with Bank of America-Merrill Lynch, believes the main negotiation angle for miners this year will be the lower spot fees.
&quot;If I look at the contract relative to spot prices, I think those smelters got away with relatively favorable terms last year,&quot; he said.
Pricing in a tighter zinc concentrate market, the 2010 benchmark deal was set at a higher level, but as that perceived tightness failed to be borne out, spot treatment charges reacted.
For 2011 imports, Chinese smelters are seeking TCs of about $180 a tonne for zinc concentrates on a zinc price basis of $2,400 a tonne, compared to last year's TCs of about $220 a tonne on a zinc price basis of $2,100-$2,200, smelter officials there told Reuters.
According to a recent Reuters poll, the average of 47 analyst forecasts put the cash zinc price CMZN0 at $2,425 a tonne in 2011.
Steady builds in London Metal Exchange (LME) zinc stockpiles have inventory levels approaching multi-year highs.
According to latest data from the World Bureau of Metal Statistics (WBMS), the global zinc market was in surplus by 341,000 tonnes in 2010, rising from a surplus of 248,000 the year before.
With supplies of the metal still relatively abundant and demand prospects unclear, negotiations between miners and smelters could prove difficult.
&quot;I do not think that there is any global shortage of concentrates and if smelters are able to cover themselves reasonably comfortably, they are not going to be pushed over quickly,&quot; one European analyst said.
&quot;Certainly zinc TCs are going to be settled lower for 2011 than for 2010 -- assuming the same basis price in each year. Whether miners are able to achieve low $200s at a basis price of $2,500 is a different matter.&quot;
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SMM Morning Review - 2011/2/18 Nickel Market

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