PHYSICALS MONTHLY - Zinc, lead TCs hit record lows as supply tightens further

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Meimei Qinmeimei.qin@fastmarkets.com+442072642479

London 26/08/2016 - Zinc concentrate treatment charges (TCs) have dipped to record lows in August after traders bought aggressively in anticipation of a resumption in smelter buying in the fourth quarter.

Meanwhile, lead TCs plunged to historically low levels on tightening supply and heightened competition.

Zinc TCs, the discounts on refined prices miners grant to smelters to cover the cost of turning concentrate into metal, were quoted at $100-115 per tonne on a cost, insurance and freight (CIF) basis for delivery to Chinese ports, down slightly from $105-115 in July.

Chinese smelters - the biggest spot buyers - stayed on the sidelines while the few transactions that were recorded were driven by traders covering shorts before the fourth quarter, typically the strongest period for concentrates demand.

"The market is not very active now but it is slowly getting lower," a trader in Europe said. "There is less and less availability in the market and the Chinese will have to cover for Q4 at some point soon."

Traders have reportedly been buying from miners at aggressive TC levels of $85-100 per tonne while sales to Chinese smelters were quoted at TCs of $110-120, with a few isolated transactions reported in the sub-$100 region.

Most smelters rejected these high terms, though, and counterbid in the region of $130-150.

"Most Chinese smelters didn't accept any deal below $120 but the bulk of offers heard were lower than that number," a trader in China said.

"There is a very clear disparity between what people are paying and what is being talked about," a second trader in Europe added.

Given the negative arbitrage between the London and Shanghai markets, most Chinese smelters surveyed by FastMarkets have turned their back on overseas zinc concentrate tonnages.

“We only bought domestically as it's at least 1,000 yuan per tonne cheaper than imports although domestic TCs also dropped," a smelter in China said.

Average domestic TCs for smelters were recently around 4,600-4,800 yuan ($690-720) per tonne on a delivered basis including VAT, down from the previous range of 4,700-5,000, according to SMM data.

There is a discrepancy in TC terms for different regions - smelters in the north of China, where some medium-sized mines are raising production by 10,000 tonnes-20,000 tonnes because of rising zinc prices, have enjoyed higher rates than those in the south due to the formers' proximity to mines.

"Smelters from the south are flooding into the north to source zinc concentrates… we've felt some impact from Huanyuan's halt too," a second smelter in the north said.

All zinc and lead mines in Huayuan County in the south of China were ordered to halt production in August for safety inspections; it is widely believed that the suspensions are exacerbating supply tightness in the south.

"The only people buying at the moment are southern Chinese smelters. The rest are either holding out or are reasonably well covered," a third trader in Europe said.

Although Chinese smelters rely heavily on raw material supply in the domestic market due to low overseas TCs, Chinese zinc ore and concentrate imports surprisingly jumped 76.4 percent month-on-month to 164,791 tonnes in July.

The higher imports could be due to smelters importing mixed lead-zinc concentrates on long-term contracts that have higher TCs than normal zinc concentrates due to the more complicated separation process, market participants have speculated. 

"Only four smelters in China, who have ISP [imperial smelting process] technology, are able to deal with the mixed concentrates… but it's an alternative way to supplement zinc concentrates,” a third local smelting source said.

The market's main focus is the potential restart of Glencore's zinc mines - CEO Ivan Glasenberg said this week the company would only do so when it felt the time was right.

"We don't want to be the ones who bring supply into the market when it doesn't require it - we will only bring it back when it makes sense to dig it out of the ground," Glasenberg said while rebuffing questions about the company's target price for zinc.


LOW-SILVER LEAD TCS NOSEDIVE TO RECORD-LOWS

The market for low-silver lead concentrates plunged to $110-120 per tonne CIF China, the lowest since FastMarkets started pricing in November 2014 and down $30 down from the previous range of $140-150.

"There's only one key word for [the low-silver] lead concentrate market - 'tight'. We bought at $180-200 at the beginning of this year and now the TC drops to nearly $100," a smelter in China said. “All the material [delivered] before November from Red Dog, Black Mountain has been sold out. Trading houses don't have any material on hand to sell either."

The noticeable tightness has been attributed to a combination of huge Chinese buying appetite for the fourth quarter, production cuts by Glencore and Doe Run and Korea Zinc's decision to lift lead smelting capacity.

“There is a shortage [of low-silver lead concentrates] in the market - the Chinese are starting to work on their stocks for Q4 and the KZ expansion is taking more units," a trader in Europe said.

It is widely believed that further tightness seems very likely while the buying competition intensifies.

Terms for high-silver lead concentrates have also slipped following the downward trend, reaching $130-140 per tonne.

(Additional reporting by Perrine Faye and Ian Walker, editing by Mark Shaw)



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