Winter Park, Florida 26/08/2016 - The Chinese domestic zinc concentrate market has grown increasingly tight due to less availability of Australian material, JP Morgan noted.
Chinese zinc ore and concentrate imports were down 45.3 percent year-on-year but rose 76.4 percent month-on-month to 164,791 tonnes in July, taking year-to-date imports to 1.16 million tonnes. This was down 32.4 percent on the same period last year, according to Chinese customs data.
"Much of the drop in imports has come as a result of reduced concentrate shipments year-to-date from Australia, one of its largest sources, which is unsurprising given the major closures and capacity cuts that have taken place in that country over the last year," JP Morgan said in a report.
Last December, Chinese-Australian metals producers Minerals and Metals Group (MMG) has shipped the final tonnages of zinc concentrate from the Century mine, which was the largest zinc mine in the world and Australia's biggest open-pit operation.
Glencore, meanwhile, suspend operations at its Mount Isa mine and cut output at McArthur River as part of its plan to reduce production by 500,000 tonnes due to low prices. Eighty percent of Glencore's zinc cuts were made in Australia.
"Chinese zinc ore imports from Australia have only totalled around 390,000 tonnes on a gross basis so far this year, nearly 43 percent lower. As such, concentrate from Australia has only accounted for around one-third of total Chinese ore imports so far in 2016, down from its roughly 40 percent share over the last couple years," JP Morgan said.
"The lower concentrate imports combined with continually sinking Chinese treatment charges (TCs) for both imported ore and domestic concentrate clearly signal tightness," it added.
According to FastMarkets' database, zinc and lead concentrates treatment charges (TCs), the discounts miners grant to smelters to cover the cost of turning concentrate into metal, currently stand at $105-115 per tonne, which is an all-time low.
It's a very different story in the Chinese refined zinc market, where imports nearly fell to just 16,800 tonnes in July, the lowest level since 2011.
"Unlike ore and concentrate, the recent reduction in refined imports is not being driven by scarcity but rather by an exceptionally weak import arbitrage," said the bank, adding that Chinese prices have averaged more than $236/t below LME prices, after accounting for shipping costs, taxes, local premiums and other freight related charges.
"This arbitrage has been negative since February, and has moved increasingly so over the last four months. Along with unflinching premiums, the negative arb and the subsequent dwindling Chinese imports continue to point to a well-supplied refined market for the time being both in China and the rest of the world," it concluded.
Chinese refined zinc premiums premiums in bonded warehouse and CIF Shanghai this week remained soft at $90-110 per tonne, according to FastMarkets data.