Investing.com — The market is currently facing challenges due to a tightening in mine supply, which has placed increased pressure on smelters globally. 

As per analysts at BofA Securities in a note dated Wednesday, the situation is critical as it affects both zinc production and the profitability of smelters, particularly those in China and ex-China. 

The zinc market has entered a deficit due to a sharp decline in mine supply. BofA Securities notes that this trend is driven by several factors, including a lack of new mining projects and reduced output from existing mines. 

“As an example, Teck contributed 5.4% to global zinc mine supply last year, but its market share is set to hit just 3.2% by 2027 on falling supply from Antamina and Red Dog,” the analysts said.

This reduction in mine supply has led to a significant tightening in the concentrates market, where zinc smelters source their raw material. The deficit is mirrored in treatment charges (TCs), which have dropped to near all-time lows. 

TCs are the fees that smelters charge miners for processing zinc concentrates into refined metal. The sharp decline in TCs highlights the scarcity of available concentrates and underscores the challenges faced by smelters in maintaining profitability.

The tightening mine supply has created an increasingly challenging environment for smelters, particularly in China and ex-China regions.

“While operators are still profitable on 2024 annual contracts, they are loss-making if they procure feedstock on the spot market,” the analysts said.

The spot market for zinc concentrates has tightened significantly, leading to lower TCs and higher costs for smelters​.

BofA Securities anticipates that TCs under 2025 annual contracts will likely decrease further as spot market availability continues to tighten. 

This downward pressure on TCs is expected to intensify the financial strain on smelters, potentially leading to further reductions in zinc output as unprofitable operations shut down or reduce production.

The current supply constraints in the zinc market are part of a broader trend affecting several base metals, including . The emptying project pipeline and reduced capital expenditures in the mining sector over the past decade have resulted in structural supply issues that are unlikely to be resolved quickly. 

This has major implications for the global zinc market, where demand continues to grow, driven by sectors such as construction and green technologies.

Moreover, the situation is complicated by China’s dominant position in the global zinc supply chain. As a net importer of zinc concentrates and refined zinc, China has the capacity to absorb much of the available supply, leaving less for smelters in other regions. 

This has led to concerns that Western smelters may struggle to compete, especially if Chinese smelters continue to operate despite the challenging economics​.

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