Zinc: From concentrate to refined Zinc almost doubled in price...

Zinc: From concentrate to refined
Zinc almost doubled in price to reach a nine-year high of $2,985 per tonne, basis LME three-month delivery, at the end of November. The driver was largely investment buying against a backdrop of tightening concentrates supply following mine shutdowns and strong Chinese buying.

Zinc treatment charges (TCs), the fees miners pay to smelters to cover the cost of turning concentrates into metal, have plunged by nearly 70% in the second half of this year to just $40 per tonne. The key factor for zinc to retain its crown in 2017 is whether the concentrate tightness will spread into the refined market, which market participants are sceptical about.

"The refined zinc market is still really soft – there is a lot of supply out there and we are getting very cheap offers. Will the market get tighter next year? Maybe, but the current price is attractive to restart production," the merchant trader said.

According to JP Morgan, some 625,000 tonnes of production outside China could come back online in the next two years, although Glencore may wait until 2018 to restart the 500,000 tpy of capacity that it curtailed in October 2015 when prices were below $1,700 per tonne.

The big unknown is how much China will increase production by, but growth should be capped at 2% next year due to environmental restrictions, JP Morgan said.

Still, Société Générale believes zinc prices will increase by another 28% in 2017 to $2,650 per tonne on average.