China’s Zinc Concentrate Imports Plummet Amid Tightening Market

China's imports of zinc concentrates have sharply decreased over the first four months of this year due to a tightening raw materials market. Spot treatment terms for imported mine concentrates are currently trading at uneconomic levels for many Chinese smelters, forcing them to rely more on domestic mine supply.

In the first four months of this year, China imported 1.18 million metric tons of zinc concentrates, a 24% drop from last year's 1.54 million tons. This is a significant change after increases of 13% and 14% in 2022 and 2023, respectively.

The collapse in treatment and refining charges, paid by miners to smelters for processing raw materials into refined metal, is the primary cause. Chinese smelters looking to buy on the international market face rock-bottom terms of $30-50 per ton, according to Fastmarkets. This year's annual benchmark terms, set by Teck Resources and Korea Zinc, came in at $165 per ton, a steep drop from the 2023 benchmark of $274.

Global mine output has been weak, with production falling by 2% in 2022 and another 1% in 2023. There has been no recovery this year, with output sliding another 3% year-on-year in the first quarter, according to the International Lead and Zinc Study Group (ILZSG).

The raw materials squeeze has been exacerbated by restarts of idled smelter capacity in Europe, reducing the amount of concentrates available on the spot market.

While Chinese smelters struggle to source economically viable concentrates, the country's imports of refined zinc have surged. Inbound volumes totaled 143,000 tons in the first four months of this year, compared to just 35,000 tons in the same period of 2023.

China turned a net exporter of zinc in 2022 due to multiple smelter outages in Europe caused by high energy prices. Trade patterns reverted to historical norms around the middle of last year, with exports largely stopping and imports accelerating.

The London Metal Exchange (LME) stocks have rebuilt from 30,475 tons to 223,225 tons over 2023 and currently stand at 255,900 tons, up 15% since January. A wide contango across the LME zinc forward curve highlights the current abundance of metal, with the benchmark cash-to-three-months time-spread reaching a multi-year high of $62 per ton at the end of May and still close to that level at $57 as of Wednesday's close.

The ILZSG estimates the global market generated a supply surplus of almost 300,000 tons last year, explaining the surplus of refined metal. In the first three months of 2024, production exceeded usage by 144,000 tons, with the Group forecasting a 56,000-ton supply surplus for the year.

China's zinc concentrates trade shows the tight raw material market affecting smelter run rates. While China's refined zinc output surged by 8% last year, production growth slowed to 1.6% in the first quarter of this year. Despite increased refined metal imports and high LME inventories, it appears the current concentrates squeeze has yet to turn into a metal squeeze.