Zinc concentrate TCs rise in China as import arbitrage deteriorates

Key takeaways:

• Zinc concentrate TCs in China rose to $100–120/t on Oct 10, with some deals clearing above $130/t; sub-$100/t TCs are now rare and sentiment remains that charges will keep rising.
• Import arbitrage has worsened (loss widened to $488.50/t), steering smelters toward domestic feed and away from spot imports; domestic concentrates are roughly 1,000–1,500 yuan ($140–210)/t cheaper than imported.
• Trader long positions are adding near-term fee pressure, but the pace of TC increases may slow toward the end of Q4 as smelting capacity ramps and winter restocking needs are met.

Persistent gains in zinc concentrate TCs as market turns supportive

Fastmarkets’ twice-monthly assessment of the zinc spot concentrate TC, cif China rose by 7.32% to $100-120 per tonne on October 10, up from $95-110 per tonne a fortnight earlier.

Some smelters are concluding deals to pay processing fees above $130 per tonne, sources in China and Europe told Fastmarkets, adding that sellers are finding it difficult to secure TCs below $100 per tonne.

Zinc TCs have maintained their upward moment ever since the charges flipped into positive territory in January.

“I don’t think there are [concentrates sales] that could be concluded at TCs below $100 per tonne,” a trader based in Shanghai said.

TCs are now generally above two-digit levels and “its certain they will continue to go up,” a European trader said.

Import arbitrage squeezes spot buying

Continuously weakening import arbitrage conditions have resulted in Chinese smelters preferring to buy concentrates locally, limiting activities on the spot market for importing, some sources said.

“Due to the huge arbitrage loss, we did not buy many imported feeds recently,” a smelter source in central China said.

Fastmarkets’ zinc import arbitrage calculation widened further to a loss of $488.50 per tonne on Friday October 10, from a loss of $439.58 per tonne on September 26.

Domestic vs import zinc concentrate pricing gap widens

The arbitrage calculation means that domestic concentrates are cheaper compared with imported ores by about 1,000-1,500 yuan ($140-210) per tonne, a third trader said.

Zinc concentrates rich in by-products such as copper are, however, still finding takers among some smelters, although the TCs have continued to rise on the back of ample supplies, a fourth trader said.

Zinc concentrate TCs face upward pressure from trader positions

And a fifth trader said that those holding material they might want to sell in the future could also continue to push up the processing fees.

“There are some traders holding very long positions which they need to liquidate,” the fifth trader said. “I believe the TCs are going to keep rising.”

Still, there is growing scepticism that the positive momentum in the TCs will last, because smelting capacity is expected to increase in the fourth quarter.

Smelters have been restocking with raw materials for production during winter, a sixth trader said.

“[The] increase in TCs may [begin to] slow down at the end of the fourth quarter,” the sixth trader added.

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