Recent rebound in SHFE/LME price ratio may support a rebound in zinc concentrate TC? [SMM Analysis]

July has passed, and under the continued supply-demand mismatch, domestic and international zinc concentrate TCs have kept falling. Recently, domestic quotes dropped to 1,800 yuan/mt in metal content, and import quotes fell to -$20/dmt, fully entering the negative processing fee range, continuously hitting historical lows. How will TCs operate in the future?

Looking at domestic mines, since Q2, domestic mines have frequently faced disruptions. Heavy rainfalls and floods have persisted in many parts of south China, while northern mines have continued to be affected by declining ROM grades. Apart from newly commissioned mines, the overall domestic mine production level has not shown significant growth and has been lower-than-expected. In the long run, this year's domestic mine supply increase mainly depends on the capacity release from Huoshaoyun. However, the nature of its oxide ore limits its use by most domestic smelters. Together with the fact that it has not been long since its commissioning, its short-term impact on easing domestic mine supply is limited. Attention should be paid to its long-term capacity release.

Imported ore: From January to June this year, China's cumulative zinc concentrate imports totaled 1.7151 million mt, down 24.71% YoY. The situation of low import volumes in H1 has not yet been alleviated. Recently, the SHFE/LME price ratio has significantly rebounded, and based on recent zinc price levels, the price advantage of imported ore has greatly increased. Domestic smelters' acceptance of imported ore has improved, and some previously low TCs of imported zinc concentrates have already been transacted. The TCs of imported zinc concentrates continue to decline. Looking ahead, most of the recently transacted imported ore will arrive in late Q3 and Q4. Coupled with the resumption of overseas mines in H1, the window for imported ore remains open, and the market expects an increase in future imports. It is necessary to monitor the subsequent inflow of imported ore.

In summary, with the continuous rebound of the SHFE/LME price ratio, domestic smelters' procurement of imported ore has improved compared to May and June. Considering shipping schedules, the domestic ore shortage has not yet been alleviated. In the short term, domestic and international TCs will remain low. If the actual arrival of imported ore increases in the future, it may somewhat alleviate the domestic ore shortage in the long term. Attention should be paid to the inflow of imported ore in Q3 and Q4.