Zinc mine supply continues sliding, smelter production bounces back
While mine supply has continued sliding, global smelter production has bounced back strongly since 2022. The main driver of higher smelter output has been China, where producers cranked up refined metal production to 6.6 million tons in 2023, a year-on-year increase of 10.9%, according to local data provider Shanghai Metal Market.
That collective performance helped global output recover by 3.8% last year after a similar-sized dip in 2022. True, there are still Western smelters struggling with high energy prices, such as Nyrstar’s Budel plant in the Netherlands which closed in January.
But conversely, the Nordenham smelter in Germany has been ramping up, opens new tab after a year of being on care and maintenance.
It’s the gap between weak global mine performance and resurgent smelter demand for concentrates that explains the sharp drop in the annual benchmark treatment charge.
Spot terms have fallen further as smelters scramble for material. Price reporting agency Fastmarkets assesses those for concentrate delivered to Chinese ports at $50-80 per ton.
The developing tightness in the zinc raw materials part of the production chain isn’t yet having any discernible impact on the refined metal balance. Zinc remains the laggard of the LME pack even as improving macroeconomic sentiment lifts the base metals complex. Currently trading around $2,700 per ton, LME three-month metal is up by just 3.0% on the start of the year, compared with copper’s 10% gains.
The metal’s usage in the form of galvanised steel means it is heavily exposed to the construction sector, a particularly weak part of the economy in both China and the rest of the world.
With smelting activity rising over the last 12 months, there is no shortage of refined zinc.
LME stocks recovered from a depleted 27,750 tons to 223,225 tons over the course of 2023. They have risen by another 37,000 tons so far this year thanks to sporadic bursts of warranting activity.
LME time-spreads suggest there may be more surplus metal hovering over the market.
The benchmark cash-to-three-months period has moved into super-contango territory, widening to over $50 per ton last month. The contango contracted to $38 at the Monday close but is still wider than anything seen since 2012-2013.
