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June 28, 2016

#Zinc - Treatment charges falling due to lack of concentrate

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)




- 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


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