The non-ferrous metals market is currently witnessing a strange paradox: zinc prices are high, yet the profits for the smelters that refine it are near zero.
This situation is primarily caused by a severe structural imbalance where raw material suppliers (mines) hold all the power. First, there's an absolute shortage of zinc concentrate, the raw material for smelters. The International Lead and Zinc Study Group (ILZSG) recently flipped its forecast for 2026 from a large surplus to a deficit, confirming that the supply of refined metal is tight. This scarcity gives mining companies immense bargaining power, allowing them to drastically reduce the processing fees, known as Treatment Charges (TCs), paid to smelters. The situation is so extreme that some spot deals have reportedly been made at negative TCs, meaning smelters are effectively paying to take the raw material.
Second, while processing fees have collapsed, final metal prices remain strong. This is partly due to the aforementioned refined zinc deficit, which was exacerbated by supply disruptions like a recent fire at Nexa's Cajamarquilla smelter in Peru. Another key factor is the rally in precious metals like silver, which are often found alongside zinc ore. The high value of these by-products increases the total worth of the concentrate, giving mines even more leverage to push down TCs. For smelters, these by-product credits are a lifeline, but they also contribute to the very pressure that's eroding their primary source of income.
Finally, the demand side of the equation is weak, creating a bottleneck. About half of all zinc is used for galvanizing steel to prevent rust, a process heavily reliant on the construction and automotive industries. However, China's prolonged real estate slump has significantly weakened demand for galvanized steel. This means smelters, despite securing scarce and expensive raw materials, struggle to sell their finished products to hesitant buyers. They are caught in a painful squeeze between powerful suppliers and weak customers.
- TC/RC (Treatment Charge/Refining Charge): A fee paid by mining companies to smelters to process raw ore (concentrate) into refined metal. It is a key source of revenue for smelters.
- Concentrate: Raw ore that has been partially processed at a mine to increase its metal content before being shipped to a smelter for refining.
- ILZSG (International Lead and Zinc Study Group): An intergovernmental organization that provides statistics and forecasts on the lead and zinc markets.