Zinc & Lead
Closing the Gap
August 2019
As the result of strong supply growth and weak downstream demand, zinc prices are continuing on a downward trend despite of inventory drawdowns at both LME and SHFE. In July, LME refined zinc stocks decreased to 79.4kt and SHFE deliverable stocks also declined down to 35.2kt, registering month-on-month drawdowns of 18.2% and 15.6% respectively.

However, with supply and demand gap closing, AME expects inventories will be progressively transferred from producers to metal exchanges in the December Half of 2019, consequently reversing the currently declining trend.

As for zinc concentrate market, AME’s 2019 benchmark TCRC is US$245/t, a significant increase from the US$147/t in 2018. In mid-2018, supressed by low margins, many borderline smelters in China were forced to extend scheduled maintenance period. Hanzhong Zinc was forced to operate at 40% capacity due to environmental issues, the Chinese reifners successfully gained the upper hand in TC/RC pricing negotiations. The new rate, highest in the five years, has incentivised idle smelting and refining capacity to come back on stream, which will eventually help the miners.

Jubilee Metals has secured the approval of the Zambian Competition and Consumer Protection Commission (ZCCPC) to acquire Sable Zinc's Kabwe Refinery in Zambia. The company had previously secured funding to complete the deal, however, it had to wait for approval from the regulator to close the transaction. Post completion, Jubilee will start a series of upgrades to the zinc, lead and vanadium circuits in the plant. These upgrades will allow the refinery to commence processing of the Kabwe tailings, with the first stage of upgrades targeting the production of vanadium pentoxide.

In July, the AME Europe zinc spot price continued to decline and averaged the month at US$2,445/t, down 4.6% month-on-month compared to the average of US$2,563/t in June. Major Chinese refined zinc producers have been actively ramping up output to capitalise on high TC/RC rates and the current supply surplus concentrates are being transferred into downstream refined zinc production at a faster pace. End-use demand is weaker amid global trade protectionism pressuring downstream industries, such as real estate and auto manufacturing.