London 17/12/2015 - Demand for high-silver lead concentrate is set to increase significantly in China after its government passed new regulations permitting primary lead smelters to make silver tolling agreements free of import duty, sources told FastMarkets.
"Smelters are very excited about how this will change the dynamics of the market," a lead mining source said.
Traditionally, Chinese primary lead smelters have only processed low-silver lead concentrate due to a prohibitive 17-percent import tax and because of massive domestic oversupply of silver, negating the benefits of importing.
But this is set to change after Beijing announced last month that smelters would be able to import silver concentrates as part of tolling deals, sources said.
Tolling, which involves the processing of metals and minerals for a fee without taking liability for the end-product, would allow smelters to continue to process lead at a time when the Chinese domestic market is in dire straits amid the lowest prices in at least four years.
"There will be more imports for high-silver [concentrates] in the future and some companies have already done this. The new policy means we have more choices in the market," a source at a Chinese lead smelter said.
The Chinese government has recently handed silver tolling permits to some copper smelters; lead smelters, keen to follow suit, are lobbying the government hard for permits.
"Copper smelters are smelting some copper concentrate with silver content but this is low compared with zinc and lead concentrates," a second mining source said.
Only one lead smelter in Hunan is currently permitted to toll silver but lead smelters in other provinces are already importing in anticipation of getting approval from Beijing.
"We have been doing business with a few smelters even before the announcement and interest in silvery materials has increased due to the new regulation," the first producer said.
And demand from China is likely to accelerate the shift in lead treatment charges (TCs), fees paid to smelters for the costs of processing concentrates to metal.
Whereas earlier in the year low-silver lead concentrates commanded lower TCs than those for high-silver material, that situation has now reversed.
This is largely because of a trend among smelters to boost precious metal processing to gain extra margins amid sinking base metal prices, leading to greater demand for high-silver lead concentrates.
"It will change everything on the lead front - now with the extra Chinese demand the market will get even tighter," a trading source said. "It will only add to the competition that was already happening for higher silvery material and the TCs will get even lower."
TCs for high-silver lead concentrate dropped $5 per tonne to $175-185 as of FastMarkets' last assessment but sources now see rates at a lower $170-180 per tonne compared with $170-185 for low-silver material.
(Additional reporting by Meimei Qin, Editing by Mark Shaw)