China zinc smelters accept record low fees as mine supply...

China zinc smelters accept record low fees as mine supply dwindles

reuters.com
Wednesday December 21, 2016 8:52 PM
* Treatment charges fall to $30 to $40 a tonne
* China domestic mines increasing production
* China mines, smelters, expected to limit output over winter

By Melanie Burton
MELBOURNE, Dec 22 (Reuters) - China's zinc smelters are accepting record low fees to produce metal amid a shortage of ore, while winter mine closures are likely to force plants to cut output early next year, industry sources said on Wednesday.
The sharp drop in fees signals a long-heralded zinc market shortage may be closer to reality. Expectations of a shortage in refined zinc, used to galvanise steel, have pushed up London Metal Exchange prices by more than 80 percent this year.
China is the world's biggest zinc producer and must ship in around 40 percent of its raw material needs from global markets. Miners pay smelters to process their ore into metal and fees fall when mine supplies are low.
Global mine supply has been shrinking after several big mines closed and others slashed output as prices fell to a 6-1/2-year-low in January. But demand has been stronger than expected this year as China's construction boom gained steam. Zinc smelters are now accepting treatment charges as low as $30 to $40 a tonne according to four industry sources, about a third of $100 to $110 they received as recently as August. "First quarter zinc concentrate supply will be very tight with a high possibility smelters will cut production," said Dina Yu, an analyst with minerals consultancy CRU in Beijing.
"Some mining companies in the Chinese markets will close during the winter months so the domestic market zinc concentrate supply will decline."
CRU and a second source, who declined to be named, said the treatment charges were at record lows.
LME zinc surged from 6-1/2 year lows below $1,500 in January to nearly $3,000 a tonne last month. Zinc was trading at $2,620 on Thursday.
Some traders argue the low treatment charges and a weaker yuan currency, which has made imported ore supplies more expensive, have lifted local mine output and will help rebalance the market.
"The increase in Chinese zinc concentrate output in the second half of the year... should accelerate in 2017," said a Shanghai-based trader. "Overall, the window for the zinc concentrate shortage to flow through to tighten metal may turn out to be very narrow," the trader said.
China's zinc output hit consecutive records in October and November, according to Standard Chartered.
But other traders said China's crackdown on pollution means domestic mine supply may yet be hamstrung.
China is sending inspection teams to investigate irregular and illegal activities in its coal and steel sectors after it pledged to raise environmental standards in the sector. (Reporting by Melanie Burton; Editing by Richard Pullin)

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