London 22/07/2016 - Zinc and lead concentrates treatment charges (TCs) have continued to fall in June - raw material supply has tightened internationally while Chinese smelters are shunning overseas supply in the spot market.
Zinc concentrate TCs, the discounts miners grant to smelters to cover the cost of turning concentrate into metal, have fallen to $105-115 per tonne from $110-120 in June.
"The smelters are starting to get very worried… they are still very depressed because the traders are offering them [TCs at] two digits," a mining source said.
The negative arbitrage between the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE) has caused zinc concentrates imports to China to slump.
Ore and concentrate imports fell 60.9 percent year-on-year to 93,419 tonnes in June, taking year-to-date imports to 1 million tonnes. This was down 29.5 percent from the same period last year, according to Chinese customs data.
Even with a falling yuan, buying incurs too large a loss at present, the miner added.
"Many smelters have lowered their TC expectations… if they really have to buy, maybe they can settle at $110-120 per tonne," he said.
Domestic TCs have also dropped during the past month - they were last around 4,700-5,000 yuan per tonne, down from 5,000-5,200 yuan on a delivered basis inclusive of VAT. Most Chinese smelters have relied on domestic supply this year due to the unfavourable arbitrage.
"Because there is not too much concentrate availability in the market, I think the Chinese will have to cut [output of refined metal] in any event… even if they would want to resume importing, they couldn't because there isn't any liquidity in the market," a second trader source said.
There is some discrepancy in TC terms for different regions - smelters in the north of China have enjoyed higher rates than those in the south due to the transport costs.
"The domestic TC has been driven down because so many smelters had to go north… to compete for material," the first source added.
LEAD TCS SINK FOR SECOND MONTH RUNNING
Reduced mine supply is also affecting the lead concentrates market where TCs fell for the second successive month.
Spot TCs for high-silver lead concentrate have fallen $10 to $135-145 per tonne CIF China while silver RCs are slipping as well - they are now around $1.2 per ounce.
Chinese demand for silver-bearing concentrates is growing, sources told FastMarkets - in December the Chinese government permitted domestic smelters to toll silver using imported concentrate. Three smelters in China have recently recived tolling licences for silver, sources said.
"Some of the Chinese lead smelters have got the silver tolling licence. There has been increased demand for high-silver lead conc but very limited supply," a lead smelting source said.
The market for lead concentrates had already tightened following mine cuts from Glencore as well as the closure of the Century and Lisheen mines while an expansion at Korea Zinc has drawn away supply of the material.
Terms for low-silver lead concentrates have also slipped, reaching $140-150 per tonne.
Further tightness seems likely given supply-side moves. In Europe, lead smelter Recylex received a conditional loan offer that will allow the company to install a new complementary reduction furnace at its 140,000-tonne-per-year Weser-Metall primary lead smelter in Germany.
The company is looking to get the funds in the fourth quarter of this year.
(Reporting by Archie Hunter and Vicky Chen, editing by Mark Shaw)