China’s zinc smelters have agreed to jointly reduce production. According to a report by Bloomberg on August 22, 14 smelters reached an agreement during an industry meeting organized by the Chinese state research agency, Beijing Antaike Information, held in Inner Mongolia. The agreement is to reduce the annual procurement of zinc concentrate by approximately 1 million tons from the initial 2025 plan. As China produces about half of the world’s refined zinc, this decision could have global repercussions.

Refineries Representing 70% of Domestic Production Agree to Cutbacks

Bloomberg’s report does not specify the scale of zinc concentrate procurement after the reduction. However, the 14 smelters participating in the joint reduction account for about 70% of China’s total zinc refining capacity. It is expected that the smelters will implement the reductions by adjusting maintenance periods, using recycled materials, and delaying the construction of new plants.

Speculation that joint production cuts would be discussed had been circulating since the meeting was announced. On August 21, Mining.com reported that sources indicated the reduction issue was being discussed at the meeting. In addition to smelters, miners and traders also attended the meeting.

A Double Whammy of Excess Capacity and Declining Product Demand

According to Mining.com, zinc processing fees in China have plummeted. The spot treatment charge for imported zinc concentrate fell below zero in the past month. In the medium to long term, the benchmark processing fee, which is negotiated between mining companies and smelters, was set at its lowest level since 2021 at the beginning of 2024.

There are two main reasons for the sharp decline in fees. First, there is an excess of refining capacity relative to the volume of raw material procurement. Overcompetition among zinc smelters has led to a drop in fees. Second, the prolonged economic slowdown both in China and internationally has led to a decrease in demand for finished products. As product prices have not risen, processing fees have inevitably fallen. The industry has been squeezed from both internal conditions and the circumstances of product supply chains, causing a landslide in processing fees.

(Trend of Zinc Ore TC Spot Prices in $/ton)

In response to the news of the joint reduction, zinc prices on the Shanghai Futures Exchange (SHFE) have slightly rebounded. On August 22, prices recovered to RMB 23,670/ton, reaching a nearly one-month high since mid-July.

(SHFE Zinc Price Trends Over the Past Three Months in RMB/ton)

(IR Universe Kure)

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