With a surplus of miners without the smelters to match, treatment prices for the base metal will continue to toe ahead.
As zinc supply continues to grow, smelters are charging more and more to process the raw material. Analysts are now projecting that treatment and refining charges (TC/RC) will remain high going into next year.
Duncan Hobbs, research director at trading house Concord Resources, told Reuters he believes that the TC/RC benchmark will exceed US$245 per tonne, but will not break US$300 in 2020. Treatment charges are the fees miners pay smelters to process zinc ore into refined metal.
“TCs are expected to remain high and annual benchmarks are going to be trending higher probably for the next few years,” said Oliver Nugent, an analyst at Citi (NYSE:C) in London. “Mine supply should be outpacing smelter capacity and rebuilding concentrate stocks for the next couple of years.”
This year, TCs have jumped to US$290 — their highest level in 11 years.
Back in March of this year, Wood Mackenzie Senior Research Analyst Rory Townsend recommended that investors pay attention to zinc smelters rather than mines.
“With regards to the global benchmark contract, the concentrate surplus, which we’ve forecast for this year, should put an advantage in the hands of the smelters when it comes to the annum contract negotiations, and we’re expecting them to be certainly higher than what they were last year.
“We may well see escalators return to the contract,” he said in a presentation at the Prospectors and Developers Association of Canada convention in Toronto, Canada.
“Increased availability of concentrate combined with increased treatment charge revenue should enable global utilization rates to increase from 82 percent last year to 86 percent this year,” Townsend continued. “Rest of the world smelters are already operating at around 92 percent utilization, so pretty high, but we’re expecting this to increase to historical highs around 2020.”
Stefan Ioannou of Cormark Securities also predicted issues with regards to a shortage of smelters when he spoke to the Investing News Network back in April.
“The argument is that miners are going to have a tough time here going forward, because there’s actually an oversupply of concentrate and not enough smelting capacity out there to use it all. They’re going to be fighting tooth and nail amongst one another to sell their products. To be fair, we’ve seen that.”
In FocusEconomics’ October forecast report, analysts polled said they expect the price of zinc to gain some ground due to a supply shortfall, but they anticipate that the ongoing trade dispute between the US and China will drag on.
On Wednesday (October 15) at market close, zinc was trading on the London Metal Exchange at US$2,435 per tonne.
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Securities Disclosure: I, Sasha Dhesi, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.