February 8, 2018

MELBOURNE (Reuters) – Zinc smelters are set to accept lower fees for processing concentrate into metal when annual contracts are hammered out next week at a conference in California, as a crunch in mine supply stretches into a third year.

Treatment charges (TCs), the fees miners pay smelters to process their ore, are likely to fall by at least 13 percent to $140-$150 a tonne or below for 2018 term contracts, from around $172 a tonne last year, according to four trader and analyst sources.

The fees are usually settled between major smelters and miners at the International Zinc Association’s annual conference, this year kicking off on Feb. 11 in Carlsbad, California. The first contract to be agreed leads the way for other deals, becoming a global benchmark.

Lower fees would weigh on smelters, such as Belgium’s Nyrstar or Korea Zinc, already grappling with thinning profit margins. But they would offer a further boost to miners like Canada’s Teck Resources which have been benefiting from soaring zinc prices.

“We forecast TCs at $150 this year because concentrate is still very tight,” said analyst Dina Yu at consultancy CRU Group in Beijing.

“We think the price-peak will appear in Q2 and then prices will retreat from Q3, due to recovering zinc concentrate and metal stocks.”

The International Lead and Zinc Study Group expects a refined metal deficit of 223,000 tonnes this year after years of underinvestment following the commodity bust around 2014.

Giant mines such as MMG Ltd’s Century in Australia and Vedanta Resource’s Lisheen site in Ireland have dried up in recent years, a gap that has only been partially filled by smaller mines and restarts. China’s pollution crackdown and industry reform have also eroded supply.

 

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