(Updating to include the benchmark levels agreed between Teck and Glencore)
London 16/03/2016 - Teck Resources has reached benchmark agreements for the supply of zinc concentrate in 2016 with both Korea Zinc and Glencore, with a 17-percent drop in treatment charges (TCs) from last year's levels.
Teck locked in TCs at $203 on a base price of $2,000 with Korea Zinc, down from the record $245 settled between Teck and Glencore for 2015.
Escalators, which amplify TCs in the event of higher London Metal Exchange prices, are nine percent over $2,000 per tonne to $2,500, eight percent over $2,500 per tonne to $3,000 per tonne and five percent above that level to $3,750 per tonne, sources with knowledge of the negotiations told FastMarkets.
In the event of zinc prices below $2,000 per tonne, de-escalators have been set at three percent below prices down to the $1,500 mark.
For Glencore, TCs were agreed at effectively the same levels - at $188 per tonne with a base price of $1,500 per tonne and escalators of three percent up to $2,000, nine percent to $2,500 eight percent to $3,000 and five percent to $3,750.
The Canadian company is the world's biggest miner of zinc, while Korea Zinc and Glencore are between them the largest smelters of the metal globally.
The TC numbers agreed by both parties are higher than the $190 levels suggested at last month's IZA conference in Arizona where negotiations broke down. Both sides had been unable to agree on a base price - LME prices had been yo-yoing from lows of $1,444 on January 12 to highs of $1,780 on February 22.
"It would be close to the IZA rumours that were mid-$190s on a base price of $1,700 - if you rebase the $203, you get to $194," a zinc concentrates trader said on Wednesday.
But the $42 drop from the 2015 record benchmark level of $245 per tonne is significant, market participants noted, with $203 the lowest benchmark level since 2012.
"It still represents a $42 year on year drop in the TC, with same basis and very similar scales, although the spot market is indeed well below the benchmark level," a second trader said.
The benchmark falling to the lowest level since 2012 is indicative of a zinc market shifting into a long-awaited supply deficit this year.
The zinc concentrate market will be 755,000-tonnes deficit in 2016, Wood Mackenzie said, citing the closures of the key Century, Lisheen and Magellan mines as well as production cuts from Glencore and Nyrstar.
Sources indicated that, with spot TCs for zinc concentrate having fallen 33 percent year-on-year to $125-135 per tonne, annual terms could have been sharper.
"The drop was already significant and it's difficult to make it bigger; we have to keep the demand, that is the key factor," a mining source said.
(Editing by Mark Shaw)