Scottsdale, Arizona 23/02/2016 - Zinc miners and smelters are expected to agree to annual treatment charges (TCs) around $190 per tonne but the two sides are finding it difficult to determine a suitable base price.
Treatment charges are fees paid by miners to smelters to turn concentrate into finished metal. For 2015 volumes, miner Teck Resources and Glencore agreed on $245 per tonne based on $2,000 per tonne LME zinc. This was the highest level since 2010.
Benchmark TCs this year will fall dramatically because the concentrate market has tightened due to the closures of the key Century, Lisheen and Magellan mines as well as huge production cuts from integrated miner-trader Glencore.
"There really doesn't seem to much controversy over the TC number - most think it will come in somewhere between $180-$200. The hard part is figuring a base price that makes everyone happy," a trader said on the sidelines at International Zinc Association conference here.
Annual zinc concentrate contracts set benchmark TCs according to an average price forecast for the year, with percentage escalators and de-escalators that raise or lower the TC according to fluctuations in the outright price. For example, the 2015 Teck-Glencore deal included a 9.5-percent escalator up to a price of $2,500 per tonne.
But over past two months the LME zinc price has gone on a wild ride. It bottomed out at a six-year low of $1,444 on January 12 but has since rallied by 22 percent to last trade at $1,760.00. This volatility makes picking a average price forecast a difficult task.
Several market participants noted that Teck held a marathon six-hour negotiating session with a smelter on Sunday evening in an attempt to reach an agreement on the base prices.
"There's no agreement on where the zinc price is going, so people might have to get creative with their base price proposals," another trader said. "One suggestion would be to have a base price range, like $1,700-2,000, where the TC would be flat. That would be one way to deal with all this volatility and uncertainty."
Meanwhile, according to FastMarkets' January 29 assessment, spot zinc TCs were at $135-150 per tonne on a cost, insurance and freight (CIF) basis for delivery to Chinese ports, down from $200 just two months ago.
Since then, Chinese smelters have been in a buying mood following the end of the Lunar New Year holiday. Several sources suggested that smelters have been bid $125 per tonne; many expect that the spot market will go closer to $110 in the coming months but will probably not break into double digits.
And in broader market fundamentals, the refined zinc market recorded a surplus of 123,000 tonnes in 2015 compared with a deficit of 224,000 tonnes in 2014 and 109,000 tonnes in 2013, according to the latest International Lead and Zinc Study Group statistics.
But the zinc market was in a deficit of 25,400 tonnes in December after a deficit of 20,000 tonnes in November and 38,100 tonnes in October.