China’s Zinc Margins Crushed as Fees Plunge to Record Lows

Chinese zinc smelters experienced a significant decline in processing fees, reaching record lows and severely impacting profitability, according to a report by Reuters on May 15, 2024. The primary driver for this downturn is a severe shortage of zinc concentrate feedstock, which has intensified in recent months. This scarcity has forced smelters to compete fiercely for available raw materials, pushing down the fees they charge for processing the concentrate into refined zinc. The benchmark treatment and refining charges (TRCs) for zinc concentrate in China have fallen to approximately $10 per tonne, a drastic drop from levels seen in late 2023 and early 2024. This reduction in TRCs directly erodes the profit margins for smelters, as these fees are a crucial component of their revenue. The situation is exacerbated by a global deficit in zinc concentrate supply, influenced by factors such as mine disruptions and lower production from key mining regions. Industry analysts suggest that without a substantial increase in concentrate availability or a recovery in processing fees, many Chinese zinc smelters may face prolonged periods of unprofitability, potentially leading to production cuts or even temporary closures. The low fees also reflect a shift in market power towards mining companies, who are less willing to offer favorable terms to smelters facing feedstock challenges.