Charges fell from over US$ 200 per tonne in May 2015 to US$ 115 per tonne currently
Falling treatment charges are a sign that smelters are having troubles to find concentrate for their smelters.
Treatment zinc charges fell from over US$ 200 per tonne in May 2015 to US$ 115 per tonne currently. The zinc spot reached a low of US$0.66 per pound in January 2016 (see attachment 1) and recovered to currently US$ 0.91 per pound. Attachment 2 shows how LME zinc warehouse stocks have fallen since August 2015.
Canadian companies with a higher component of revenues coming from zinc are:
Teck Resouces (TCK/B)
HudBay Minerals (HBM)
Lundin Mining (LUN)
Trevali Mining (TV)
and soon
Nevsun Resources (NSU)
FROM SCOTIABANK:
- Zinc (Spot) Treatment Charges Fall as Supply Tightens Even More: Zinc concentrate treatment charges (TCs) are down in May and into June as supply tightened though spot trades were scarce. Chinese smelters were not willing buyers at the lower terms for concentrates. Zinc TCs are now at ~$115/t (CIF deliver to Chinese ports). This is the discount on refined prices miners grant to smelters to cover the cost of turning concentrate into metal. This is down from ~$130/t level around 6 weeks ago. Zinc concentrate imports to China are also facing headwinds via a negative arbitrage between London and Shanghai. They are relying on inventories, domestic mine supply and port stocks to meet their needs. According to market participants average stocks at most domestic smelters are widely reported to be around one month, down from 30-40 days to two months in April.
Spot concentrate to China not as desirable due to the negative LME/SHFE arb and low incentive (i.e. low TCs). Chinese smelters are pulling on domestic supply, inventories and port stocks. Scotia Mining Sales thinks zinc concentrate TCs (via a continued tightening of concentrate inventories) will remain low. Total global zinc stocks is likely to trend lower (see chart below).
Total global zinc stocks are now at 734kt which is -2.2% YTD and -4.2% YoY. Total global zinc inventories are down 53% from their peak levels in December 2012.
Source: LME, SHFE, Comex, Bloomberg, Scotiabank GCM, Charts Created by Scotiabank Mining Sales
Here’s an unfamiliar phrase: commodities are the best performing asset class.
Yes, it’s true. In the year 2016, total returns from theBloomberg Commodity Indexare over 11 per cent. Compare that to global bonds, at about 6 per cent, and global equities at just over 2 per cent.
The index has pushed higher thanks to components such as oil, gold, soyabeans and zinc. As of Friday the benchmark had climbed 19.6 per cent from its January low to the cusp of a bull market. It’s been the strongest start to any year since the notorious commodities price spike of 2008.
After years of disappointment, there is evidence that some investors are again seeking broad exposure. Commodity investments soaked up nearly $60bn in inflows in the year to April, according to RBC Capital Markets.
Investors have this year pumped $163m into the PowerShares DB Commodity Index Tracking exchange-traded fund, the biggest such fund holding a basket of commodities, after they withdrew more than $1bn last year, ETF.com data show.
There are no pure zinc companies. Zinc is mined with copper, silver and lead.
Teck Resources (TCK/B) is a large diversified mining company with 35% of cash operating profit coming from zinc. Glencore is also the other option in terms of large caps.
Other Canadian producing mining companies with zinc exposure are: Lundin Mining (LUN), HudBay
The Deepening Deficit That Makes Zinc One of 2016's Top Bets - Bloomberg
Zinc Surged as much as 25 percent in 2016 to the highest since July as miners supply less of the ore concentrate that's refined to produce the metal, just as demand rebounds in China
The Deepening Deficit That Makes Zinc One of 2016's Top Bets
The Chinese smelters that churn out more than 40 percent of the world's zinc may cut production for the first time in four years because they can't get enough raw material, further lifting prices of one of this year's strongest-performing commodities.
Zinc, used for rustproofing steel in everything from auto bodies to suspension bridges, has surged as much as 25 percent in 2016 to the highest since July as miners supply less of the ore concentrate that's refined to produce the metal, just as demand rebounds in China, the biggest user. Banks from Goldman Sachs Group Inc. to Macquarie Group Ltd. see further gains, while Glencore Plc, the biggest miner of the metal, says structural deficits are back.
The zinc market is feeling the effects of last year's 26 percent collapse in prices that prompted miners including Glencore to trim output and, in some cases, shut down production altogether. Macquarie estimates that supplies of concentrate will shrink 8 percent this year with consultant CRU Group forecasting the biggest shortage on record. Smelters will need to compete to secure the dwindling supply of concentrate by reducing the fees they charge miners to turn it into zinc, and that may prompt some to curb refining, according to SMM Information & Technology Co.
"Most smelters won't be able to hold production levels now if processing fees shrink further," said Liu Weijie, an analyst at Shanghai-based consultant SMM.
Supply Deficits
Production of refined zinc in China is set to drop about 6 percent in 2016 from a year earlier to 5.65 million metric tons amid the biggest shortage in supply of mined concentrate on record, according to Dina Yu, a Beijing-based analyst with CRU Group. The deficit will be 910,000 tons, in terms of metal contained in the ore, pushing domestic smelting fees to the lowest in almost two years, data from SMM Information & Technology show.
Spot fees for domestic mine output declined to 5,200 yuan ($790) a ton of contained metal in May, the lowest since July 2014, SMM data show. Charges for imported ore have dropped to the lowest since 2012, according to the CRU's Yu.
Smelters are also being squeezed from outside China. Purchases of foreign concentrate shrank to the lowest since 2014 in April and are down 17 percent in the first four months from a year earlier, according to customs. "Foreign miners are prioritizing supplies to their own refiners, leading to a big drop in shipments to China," said SMM's Liu. By contrast, refined-zinc imports jumped 65 percent in the first four months from a year earlier, customs data show.
Bullish Dynamic
The strongest acceleration in China's infrastructure spending since the global financial crisis and a bottoming in the property market will drive demand, according to Goldman Sachs. A quarter of the metal's consumption in China comes from infrastructure and a significant amount from commercial and residential property uses, the bank estimated in a May 19 report. Zinc inventories in warehouses tracked by the London Metal Exchange have shrunk about 38 percent since September.
Zinc has "by far the most bullish supply side dynamic across the base metals," Goldman Sachs said last month, forecasting the global shortage of refined supply will balloon to 360,000 tons next year from 114,000 tons in 2016. Macquarie predicts an average of $2,313 a ton in 2017, while Glencore sees continuing supply challenges because of scarcity at current prices.
Zinc for delivery in three months climbed above $2,000 for the first time in more than 10 months on Thursday, before trading at $1,985 by 10:45 a.m. in London for a gain of 4.6 percent this week. The metal's return this year makes it the fourth-strongest raw material on the Bloomberg Commodity Index.
Invisible Stockpiles
Some are not so bullish. It may take longer than expected for the emerging concentrates supply crunch to feed through to refined-metal markets, analysts from Citigroup Inc. including David Wilson said in an e-mailed note. Zinc demand has remained muted, and total inventory including metal that's held off-exchange may amount to between 2.5 million tons and 3.5 million tons, or as much as 13 weeks consumption, according to the bank. This is "likely to have a dampening effect on prices," the analysts wrote.
The raw material shortage may mean Chinese smelters fulfill part of a pledge they made in November to cut output by 500,000 tons in 2016 from about 6 million tons last year. That would reverse an increase of 1 percent in the first four months, according to Goldman Sachs estimates.
An official at China's biggest zinc processor, Zhuzhou Smelter Group Co., who asked not to be identified, was unable to comment immediately because the company was still assessing output. A decline in production would be the first since 2012, statistics bureau data show.
