Chinese domestic zinc concentrate TCs take centre stage

Chinese domestic concentrate treatment charges (TCs) are increasingly a key tracking element in the zinc market where smelting economics are under the microscope more than ever.

Accordingly, Metal Bulletin has identified the need for monthly assessments; one that covers delivery to northern smelters in China and another which covers southern smelters, who are further away from most domestic production in Inner Mongolia.

These will support and complement zinc coverage which already includes a monthly assessed spot treatment charge (TC) basis cif China.

Zinc prices in London and Shanghai have continued to firm so far this year, building on a deficit-fuelled surge in 2016.

At the same time, TCs for imported material and domestically produced concentrates have fallen sharply, often acting in an inverse relationship to exchange prices.

In August, TCs for domestically produced Chinese zinc concentrates dropped to 4,000-4,400 yuan per tonne on a delivered basis, the lowest since March, with smelters in the south of China receiving lower TCs than their northern counterparts.

Concurrently, China premiums for imported zinc ingots shot to three-and-a-half-year highs, while exchange prices have firmed again, this time to a ten-year high above $3,200 per tonne.

Unlike with other base metals, such as copper and aluminium, China is largely self-sufficient throughout the zinc value chain.

Around 70-80% of Chinese smelters’ zinc concentrates are produced from domestic mines, with the rest made up by imports. Indeed, it is by far the world’s top producing country for mined zinc, with output 5.27 million tonnes of zinc contained in ores or concentrate during 2016.

So far this year, Chinese zinc concentrate production was 2.09 million tonnes in the first half year 2017, down 4.6% on a yearly basis, according to Nonferrous Metals Information Statistics.

Importantly, Chinese domestic zinc concentrates trade mostly on the spot market, unlike the international market, which is mostly settled on a long-term or annual benchmark basis.

When domestic and international TCs sank to multi-year lows in January and February 2017, Chinese smelters reacted by trimming imports and an 540,000 tpy of capacity, amounting eventually to an open refined metal arbitrage and a surge in zinc prices.

“We need to use the domestic and global treatment charges together to justify the market trend and decide our strategies,” a smelter source in China said.

This movement heightens the requirement for a reference price for Chinese domestic TCs.

The pricing consultation for the proposed Chinese domestic zinc concentrates TCs assessment ends on October 5, 2017. Find the full consultation document here.

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