Investing.com -- The zinc market is currently experiencing difficulties as mine supply tightens, putting pressure on smelters worldwide.
According to analysts at BofA Securities, the situation is critical for zinc production and smelter profitability, especially in China and other regions. The market has entered a deficit due to a sharp decline in mine supply, driven by factors such as a lack of new projects and reduced output from existing mines.
For example, Teck's market share is set to decrease from 5.4% to 3.2% by 2027 due to falling supply from Antamina and Red Dog. This reduction in mine supply has led to a tightening in the concentrates market and a drop in treatment charges (TCs) to near all-time lows.
TCs are fees that smelters charge miners for processing zinc concentrates, and the scarcity of available concentrates has made it challenging for smelters to maintain profitability. The spot market for zinc concentrates has tightened significantly, leading to higher costs for smelters.
BofA Securities predicts that TCs under 2025 annual contracts will decrease further as the spot market availability tightens. This downward pressure on TCs could lead to financial strain on smelters and potentially reduce zinc output.
The current supply constraints in the zinc market are part of a broader trend affecting base metals, with structural supply issues unlikely to be resolved quickly. This has major implications for the global zinc market, where demand is growing, driven by construction and green technologies.
China's dominant position in the global zinc supply chain complicates the situation, as it can absorb much of the available supply, leaving less for smelters in other regions. Western smelters may struggle to compete if Chinese smelters continue to operate despite challenging economics.
In conclusion, the tightening mine supply in the zinc market is creating challenges for smelters globally, with potential impacts on profitability and production levels. Investors and industry players should closely monitor the evolving situation and consider its implications for their financial decisions.