Smelter charges breakdown as zinc mine supply wanes
LONDON – Benchmark zinc smelter treatment charges have fallen sharply this year, attesting to a tightening of the mine supply chain. Canadian miner Teck Resources, opens new tab has agreed to pay Korea Zinc, opens new tab $165 per metric ton to convert its zinc concentrate into refined metal, down from the $274 covering last year’s shipments.
The annual terms negotiated by the two companies have in recent years been the benchmark for the rest of the industry. Treatment charges rise during times of raw material surplus and slide during periods of shortfall.
Last year’s numbers were high because of a smelter bottleneck and resulting glut of mined concentrate in 2022. This year’s low outcome says much about how zinc’s supply dynamics have changed in the intervening 12 months.
A string of mine closures, many of them due to the weak price environment, has tightened concentrate availability with significant implications for the refined metal market.
London Metal Exchange (LME) zinc went from boom to bust over the course of 2022 and early 2023, the three-month price collapsing from an all-time high of $4,896 per ton in March 2022 to a three-year low of $2,215 in May 2023.
The price implosion caused several higher-cost mines to close, most notably Boliden’s (BOL.ST), opens new tab Tara mine in Ireland, Nyrstar’s (NYR.BR), opens new tab Middle Tennessee operations and Toho Zinc’s (5707.T), opens new tab Rasp mine in Australia.
The lengthening tally of casualties caused global mined output of zinc to contract by 1.4% year-on-year in 2023, according to the International Lead and Zinc Study Group (ILZSG). It was the second consecutive year of decline after a 2.6% drop in 2022.
This year may not turn out much better.
A November fire at the Ozernoy mine in Russia has delayed commissioning of what was expected to one of the biggest additions to global production this year.
Ozernoy, capable of producing 350,000 tons of contained zinc every year, now seems unlikely to restart processing ore into concentrates until the fourth quarter of this year.
When ILZSG last met in October for its biannual meeting, the Group forecast a robust 3.9% year-on-year increase in mined output this year. That’s starting to look optimistic and may be subject to revision when the Group holds its spring 2024 meeting.
