The latest treatment charge agreement between Canadian miner Teck Resources (NYSE: TECK) and Korea Zinc Inc (KRX: 010130) may signal that the zinc market is headed toward a supply crunch. Treatment charges, paid by miners to smelters for processing raw materials into refined metal, typically decrease when mine output falls and smelters compete for limited concentrate supply.
In a recent deal, Teck agreed to pay Korea Zinc only $165 per metric ton to process its zinc concentrate from the Red Dog mine in Alaska. This benchmark rate represents a staggering 40% drop from last year’s level and marks a three-year low. The steep decline suggests dwindling zinc concentrate availability in the market.
Contributing to potential shortages, major zinc mines have suspended operations due to economic pressures from low zinc prices and extreme weather events. Notable examples include Boliden’s Tara mine in Ireland and Glencore’s massive McArthur River mine in Australia. With key supply sources going offline, smelters may face difficulties securing sufficient raw material feedstock.
As the world’s largest zinc and lead producer, Korea Zinc’s activities hold considerable sway over global market dynamics. Its bulk purchase agreement with Teck at depressed treatment charge levels could foreshadow a zinc supply deficit in the coming months if mine outages persist.
Information for this story was found via Reuters, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
