February 3 (Metal Bulletin) -- Miners and smelters remain
around $10 per tonne apart in their views of where 1999 zinc
concentrates treatment charges should be settled. As the two
sides enter the fifth month of negotiations, there appears to
be no sign of a breakthrough. Probably only one thing has been
agreed so far: that the TC will be calculated according to zinc
at a basis of $1,000 per tonne.
North American miners have visited Europe in recent weeks but
were unable to budge the smelters. Miners are asking for a
reduction in the charge to around $160-165 per tonne basis
$1,000 from last year's benchmark of around $185-187 per tonne
basis $1,100 (or $170-172 per tonne basis $1,000).
However, smelters in Europe are actually looking for a slight
move the other way, with many targeting a TC of $175 per tonne
basis $1,000. Miners said that other issues such as payment
terms and escalators are also causing some heartache. Zinc
traded at an improved $995 per tonne basis three on February 2
on LME kerb trading. Should the market rise further to $1,000
or $1,050 per tonne the market will be more in balance and the
miners, ever-susceptible at low prices, may end up being more
compliant and flexible towards the smelters.
One miner said that it is working on the assumption of a
concentrates deficit of around 87,000 tonnes in 1999, based on
a revision of the International Lead & Zinc Study Group (ILZSG)
surplus forecast released last year. Since then there have been
a number of mine closures or suspensions, while it now seems
that Boliden's Los Frailes mine in Spain will not restart as
early as expected. "When in October 1997, ILZSG predicted a
surplus of 85,000 tonnes for 1998, the smelters wanted to
increase the TCs by $50 per tonne. It has to work both ways,"
one Canadian miner said.
Metal Bulletin Research noted a concentrates surplus last year
of 15,000 tonnes and is predicting that its initial forecast
surplus of 40,000 tonnes for this year may be whittled away
into a concentrates deficit. "Whether the market is in surplus
or deficit by 30,000 tonnes is pretty irrelevant. The fact is
that for now the picture is very finely balanced," a
concentrates trader said.
Miners are also keen to note that the treatment charge can no
longer be a straight reflection of the supply-demand picture
because at current zinc prices a reduction in TCs is essential
to ensure survival for many mine operations. "If miners don't
get help [through a reduced TC] then the supply-demand balance
will change throughout the year," another miner added.
"Cash is everything. It's one thing that the zinc price is
low, but because the problems run right through the whole base
metals complex, raising money has become very difficult.
Therefore, miners trying to get through the tough times have
problems because banks just don't want to lend money to the
metals and mining industries. We need to generate cash form our
own operations and we can only do that with a TC of around $160
per tonne basis $1,000," one miner reflected.
Concentrates traders are watching developments in Italy where
the immediate fate of the Crotone and Porto Vesme smelters is
still in question. Some market participants spoke of rumours
that Glencore may keep Porto Vesme out of action for longer
than first thought. "The Italian situation should prove to be
a key element in this year's discussions," a European smelter
said. Glencore was unavailable for comment.
T
he "abysmally slow" progress, in the words of one smelter, is
pointing towards a TCs summit taking place at the AZA meeting
at the end of the month. The view of one concentrates trader
was that despite the focus on the convention in California
"there will probably not be too many smiling faces at the end
of the day there either. Just because everyone is going to get
together does not mean the deadlock will be broken there.
That's a reflection of how our industry works," he said.
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