Zinc & Lead
Hitting a wall
April 2018
Prices are expected to slowly decline over the year as refined production increases with rising mine production. A lag will, however, exist between the rise in mine production, refined output, and an increase in metal stocks.

Notable concentrate supply to enter the market over the June Quarter includes Titan Mining’s 60ktpa Empire State Mine and the continued ramp up of MMG’s 170ktpa Dugald River. Increases in refined production will come from a series of operations, notably in China as plants ramp up after Chinese New Year. Outside of China, Noranda’s 298ktpa Canadian Electrolytic Zinc smelter will lift production after output was limited in 2017 due to a strike.

Political uncertainty was reflected in the zinc price over March as the price hit a high of US$3,415/t (US$1.55/lb) and a low of US$3,201/t (US$1.45/lb). March was the first month in 2018, that the closing price was lower than the previous month. The zinc price closed March at US$3,284/t (US$1.49/lb), 5.6% lower than February. LME zinc stocks also rapidly changed in March. On the 5th of March, 77kt of zinc came onto the LME, more than half the total LME stocks on the day prior. The sharp lift hints to a higher level of producer/consumer/off market stocks than was previously thought. Despite the 158% increase in LME zinc stocks to 213kt, the March close still only covers 5.3 days of annual zinc demand.

It appears a deal is yet to be reached over the 2018 zinc concentrate benchmark treatment charge (TC). After a lack of concentrate supply pushed the 2017 TC 15% lower year on year to US$172/t, miners and refiners are still trying to reach an agreement on a fair mark for 2018. Miners continue to argue for approximately US$150/t, whereas the smelters believe the new concentrate entering the market in 2018 is sufficient to push TCs to US$200/t. There is also some talk of re-introducing escalators and de-escalators. Spot TCs for imported zinc concentrate into China averaged approximately US$17/t in March, marginally below the February average.

Chinese refined zinc imports continue to fall in early 2018. Over the first two months of the year, Chinese refined zinc imports totalled 104.8kt, 53% lower than the two months prior. While this was partly driven by Chinese New Year, it was also the result of higher domestic output than the equivalent period in 2017. The ramp up in Chinese refined production will be timely for galvanisers whose capacity utilisation has been reduced over recent months. AME estimates Chinese galvanisers and other users will push China’s refined zinc demand 3.5% higher to 7.2Mt in 2018.