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Market participants gathered at the 2020 International Zinc & Zinc Oxide Conferences in Scottsdale, Arizona, in the United States, this past week for the annual contract benchmark talks, along with all the sources with whom Fastmarkets has spoken, agree that this year’s TCs – charges paid by miners to smelters to process ore into refined metal – will be significantly higher than in 2019.
They noted that there was a wide gap between the numbers that miners and smelters were seeking.
Preliminary talks suggest that the zinc TC may be agreed at $290-300 per tonne and the lead TC at $160-170 per tonne, with a refining charge (RC) of $1.50 per lb, a source at a mid-sized miner told Fastmarkets, although there have been no confirmed numbers yet.
There also has not yet been any confirmation on the basis price and scales, which increase or decrease the paid TC level based on cash price movements. But the miner source said a $2,300 zinc basis price had been suggested.
A trader put his guess at a zinc TC of $285-290 per tonne and a lead TC of $170-190 per tonne. “The miners will be lucky if the zinc TC is under $300, but above $300 is too high,” the trader said.
By Wednesday February 19, the gap between the numbers that miners and smelters were asking for had fallen to $15 per tonne, the trader said.
Major zinc miners opened the 2020 talks with the view to roll over the 2019 rate, which was a four-year high of $245 per tonne based on an outright cash price of $2,700 per tonne. The lead TC was $98 per tonne in 2019 and the RC was $0.60 per lb.
Last year scales were agreed at 2% below $2,700 per tonne, 0% between $2,700 and $3,000 per tonne and 5% above $3,000 per tonne.
Escalators and de-escalators had “almost disappeared in previous years when the zinc concentrate supply was tight,” a second trader said. “But if this year the basis price is $2,150, then a wide range of escalators and de-escalators can be expected.”
Major smelters are understood to have opened the talks by asking for zinc TCs of around $330 per tonne, according to a third trader at the conference.
“2019 was a smelter’s market… 2020 will be worse,” the trader said.
Fastmarkets assessed the spot zinc concentrate TC, cif China at $285-310 per tonne on January 31, narrowing downward by $5 per tonne from a multi-year high of $285-315 per tonne in December.
Fastmarkets assessed the lead spot concentrate TC, low silver, cif China at $140-160 per tonne on the same day, down by $10 per tonne from $150-170 per tonne in December. The lead spot concentrate TC, high silver, cif China assessment was unchanged, at $150-170 per tonne.
A smelter’s market Some lead and zinc concentrate miners were on the edge during the International Zinc Association (IZA) conference, noting that a suggested zinc TC of $275-280 per tonne was feasible when it was proposed during the 2019 LME Week, when the zinc price was around $2,500 per tonne.
“But now the situation has changed after the outbreak of the coronavirus, and the zinc price is around $2,100 per tonne,” the miner source told Fastmarkets.
The zinc London Metal Exchange three-month contract closed at $2,113-2,115 per tonne on February 20, down by 16.8% from $2,539-2,540 seen on October 29 last year, when the LME Week was held.
Numerous factors have led to the current conditions in which a return to the high TC levels of 2010-15 are possible, a lead concentrates buyer told Fastmarkets at the IZA conference.
The burgeoning supply of concentrates is already reflected in the high spot TCs for the sister metals, but the outbreak of the novel coronavirus is putting pressure on a global economy that was just beginning to emerge from a protracted trade war between the United States and China.
A Wood Mackenzie report estimates that about 50% of mines in China have been forced to “take an extended shutdown.”
Fastmarkets has reported that some Chinese zinc smelters were forced to cut production because they ran out of storage space for sulfuric acid.
“Zinc smelter production cuts will not only affect the zinc market in China but will have a knock-on effect in the rest of the world [because] they cut China’s appetite for imported concentrates,” the Wood Mackenzie report said.
The latest data from the International Lead and Zinc Study Group forecasts that tightness in the refined zinc market will dissipate this year, returning to a surplus of 192,000 tonnes – although Fastmarkets analysts project a small, 12,000-tonne deficit.