(Bloomberg) -- China’s biggest zinc smelters pledged to reduce their intake of concentrate to stem deepening losses on refining the metal, a measure that’s likely to further reduce production in the world’s top supplier.
Processors will cut their ore demand this year by nearly 1 million tons on a metal-contained basis, from their estimate at the start of 2024, according to a statement issued by state-owned research firm Beijing Antaike Information Development Co. The statement didn’t given a total figure.
Chinese smelters, which supply over half the world’s refined zinc, have too much capacity compared with the supply of concentrate. Spot treatment charges on imported ore have plunged below zero over the past month. Demand has also been hit by the crisis enveloping China’s steel industry, which uses the metal to galvanize its products.
Some 14 zinc processors, with combined annual capacity of 4.17 million tons, or 70% of China’s total, have agreed to adjust their maintenance plans, increase the use of secondary raw materials and delay new capacity, to cope with fees that have “severely deviated” from refining costs, according to the statement.
The agreement was reached at an industry gathering in the city of Bayannur in Inner Mongolia on Wednesday, which was organized by Antaike.
“There won’t be enough secondary raw materials to fully replace 1 million tons of ore, so that will lead to some losses in refined zinc output,” said Zeng Tong, an analyst with Jinrui Futures Co. The scale of the cut in ore intake is more than the market expected, she said.
Chinese zinc output has already eased from the record high hit in December, with July production falling to a one-year low of 536,000 tons. Output may drop further this month due to tight ore supplies, Shanghai Metals Market said in a note.
Smelters in China and the global miners that supply them will soon begin negotiating annual supply contracts. The benchmark for this year was set at its lowest since 2021, as competition increased among smelters to process ore.
Zinc rose as much as 1.1% to $2,882 a ton on the London Metal Exchange, the highest in over a month, before trading at $2,865 as of 2:41 p.m. in London.
--With assistance from Sana Pashankar.
©2024 Bloomberg L.P.
