Zinc benchmark TCs settled at $165/t; down nearly 40% y-o-y on continued tight supply

The processing fee that Canadian miner Teck Resources will pay smelter Korea Zinc to convert its concentrate from Red Dog mine in Alaska, the US, into finished metal is negotiated on an annual basis. It is often considered a benchmark by the industry.

Typically, tighter supply in raw material leads to a drop in TCs because miners can pay less to smelters who are competing for concentrate.

The annual TCs for 2024 have plunged by 39.78% from last year’s $274 per tonne. The fees for 2022 and 2021 were $230 per tonne and $159 per tonne respectively.

Zinc concentrate deficit

A concentrate deficit has overshadowed the zinc market since the second half of 2023 after a series of mines in South America, Africa, Europe and Australia cut production or temporarily shut down on negative profits, affected by the faltering London Metal Exchange zinc price.

“Zinc TCs are under pressure at the moment,” one miner source said, noting the mining closures.

“Mine closures will continue, there is definitely a risk of more closures,” the miner source added.

Sources noted that market conditions will remain tight, explaining the low benchmark compared with last year.

“The benchmark is broadly aligned with our forecast of $170-190 per tonne, based on the historical correlation between spot and benchmark terms, and the decline is a clear reflection of tighter conditions in the zinc concentrate market following the suspension of over half a million tonnes of uneconomical mine capacity last year,” Fastmarkets analyst James Moore said.

Sources told Fastmarkets that the decline in the benchmark TCs, although in line with recent expectations, still brought the annual fee to a low level considering previous years’ numbers.

The LME zinc price closed at $2,478.50 per tonne on Tuesday April 2, and averaged $2,476.10 per tonne in the year to date, falling from 2023 high of $3,499 per tonne on January 26, 2023.

Most market participants agreed that a zinc price of $2,400-2,500 per tonne is breakeven for most mines outside China, and miners would struggle to make ends meet under current prices.

Sources told Fastmarkets that inflationary pressures have challenged zinc mining operations, alongside low outright metal prices.

“If the galvanized metal’s price continues to perform below than expected, I don’t think the already suspended mines will have strong incentives to resume operation,” a Shanghai-based trader said.

“The tightness may continue in the short term, at least for the first half of this year,” a second trader based in Shanghai said.

In the spot market, Fastmarkets’ bi-weekly assessment of the zinc spot concentrate TC, cif China was $50-80 per tonne on Friday March 29, down by $20 from $70-100 per tonne on March 8.

“The disparity between spot and benchmark term suggests the market still anticipates availability to improve in the coming months as new mine capacity from areas such as Bosnia, Mexico and DRC enters into operation,” Fastmarkets’ Moore said.