London 20/05/2016 - Spot purchases for zinc and lead concentrates have slowed in May, with treatment charges and refining charges (TC/RCs) steady during this month.
ZINC SPOT MARKET STABLE, CHINESE SMELTERS SIT ON SIDELINES
Spot treatment changes for standard-grade zinc concentrates at around $125-135 per tonne on a cost, insurance and freight (CIF) basis to China in May were unchanged from last month.
Chinese smelters have turned their back on imports due to the negative arbitrage between the London and Shanghai market, relying heavily on their inventories, domestic mine supply and port stocks.
"We have high stocks... we do not need extra tonnages from overseas," a Chinese smelter said.
Inventories at major Chinese zinc smelters cover up to two months of consumption, several sources told FastMarkets.
"We are well-fed with zinc concentrates and do not need to purchase more until the end of June," a second major Chinese smelter said
"I get the feeling that Chinese smelters are not that eager to buy at [$120 per tonne] and that maybe there is more domestic availability," a trading source added.
The disparity in TCs in northern and southern China held at around 300-400 ($45.7-61) yuan per tonne on material produced domestically due to proximity to mines and transport factors. On average, the TC dropped to 5,100-5,300 yuan ($779-809) per tonne on a delivered basis including value-added tax from 5,150-5,350 yuan ($792-823) a month ago.
"In northern China, we are less tight on concentrates supply as we are closer to different mines while those in southern provinces have less supply and high transport costs for sourcing raw materials," a smelter in North China said. “We are buying at around 5,400-5,500 yuan per tonne for TCs."
Stocks at major ports in China have also dwindled - inventories at Lianyungang, Fangchenggang and Qinhuangdao are around 100,000 tonnes, several sources estimate.
"Stock levels have dropped significantly in Chinese ports, especially Lianyungang. Approximately 100,000 tonnes have been taken out during the past month," a well-informed source said.
Major Chinese zinc smelters have been operating at high levels - several sources do not expect the production cuts of 500,000 tonnes of zinc ingots to materialise if domestic TCs remain above 5,000 yuan per tonne.
"TCs of around 4,800-5,000 yuan per tonne are the threshold for being profitable or not - that explains why smelters are unwilling to reduce production," a third smelter source said.
ANNUAL CONTRACTS FOR LEAD CONCENTRATES SEALED, SPOT MARKET DULL
Spot rates for high-silver lead concentrates were last at $150-165 per tonne CIF China although some deals have concluded around $10-20 higher in Europe due to weaker demand compared with Asian regions.
"Some European-produced material has been settled at higher than $170 per tonne, with RCs in line with the benchmark... European material is a bit softer in terms of demand," a lead smelting source said.
Spot availability is limited but most miners are covered under their annual contracts supply and are able to sit on the sidelines, market participants said.
For annual terms, Sumitomo has agreed levels of $170 per tonne for its San Cristobal annual high-silver lead concentrates, with silver refining charges at $1.5 per ounce. Other terms were not disclosed.
Spot rates for low-silver lead concentrates were last at $150-165 per tonne, unchanged from April.
The annual benchmark for Teck's Red Dog low-silver concentrates varies between Asian smelters.
Teck has reportedly concluded with Japanese smelters at TCs of $210 per tonne on a lead base price of $2,000 per tonne and settled with Korean smelters at $193 - the disparity is due to zinc payment terms and other undisclosed conditions.
"There are zinc payment terms worth around $20 there, which makes up for the difference the Japanese pay for the zinc... the bottom line is the same," a trading source said.
Both deals have escalators, which amplify TCs in the event of higher LME lead prices, of six percent over $2,000 per tonne, with no upside limit. On prices below $2,000 per tonne, de-escalators have been set at four percent, with no floor.
Teck inked deals with Chinese smelters at around $130-140 per tonne. Silver RCs, meanwhile, were agreed at between $1.20 and $1.50 per ounce for different smelters.
"Teck has concluded all its direct sales between $133/134 and the high $130s so apparently it sold pretty much everything and is pretty happy with the interest... there was a huge appetite," the trading source said.
(Additional reporting by Archie Hunter, editing by Mark Shaw)