LONDON, April 8 (Reuters) - Zinc has been the consistent

under-performer of the London Metal Exchange (LME) base metal

pack since the start of 2025 and this year's benchmark smelter

treatment charge reinforces the galvanising metal's bear

narrative.

Korea Zinc and Canadian miner Teck Resources ( TECK )

have agreed annual fees of $80 per metric ton for the

smelter to process Teck's zinc concentrates into refined metal,

according to Bloomberg.

That's a sharp drop from last year's benchmark of $165 per

ton and the lowest outcome in at least 50 years, according to

consultancy CRU.

Given smelters get to charge more in times of raw materials

over-supply and less during periods of scarcity, this year's

super-low benchmark might at first glance seem a super-bullish

signal.

But only relative to last year's benchmark deal.

Relative to spot treatment charges, which turned negative

towards the end of 2024, this year's benchmark is a sign that

both smelters and miners expect mined zinc supply to recover

strongly in 2025.

YEAR OF UNEXPECTED FAMINE

Last year's benchmark processing deal, negotiated by the

same two companies, was out of date almost as soon as the ink

had dried.

Spot treatment charges slumped over the remainder of 2024,

touching an unprecedented low of minus $40 per ton in the fourth

quarter, according to Chinese data provider Shanghai Metal

Market (SMM).

The yawning disconnect with the annual benchmark showed just

how unexpected was the shortfall of zinc concentrates.

A year of expected plenty turned into a year of famine due

both to price-related mine closures in 2023 and a string of

supply hits such as the fire at the big new Ozernoye mine in

Russia.

At its April 2024 meeting The International Lead and Zinc

Study Group (ILZSG) forecast global mine production to rise by

0.7% relative to 2023. The reality was a 2.8% contraction,

marking the third consecutive year of falling output, it said in

a February update.

The squeeze on raw materials availability caused global

refined zinc production to fall by 2.6% last year, pulling the

market into a 62,000-ton supply-demand deficit.

MINE SUPPLY CRANKS UP

Chinese spot treatment charges for imported zinc

concentrates have bounced sharply from their late 2024 lows and

were last assessed by SMM at $35 per ton.

China's zinc concentrate import volumes are also recovering

after falling by 13% in 2024, the first year-on-year decline

since 2021.

Inbound shipments over January and February jumped by 33%

relative to the same two months last year.

China has started importing zinc concentrate from the

Democratic Republic of Congo for the first time in many years,

attesting to the restart of the Kipushi mine, majority owned and

operated by Ivanhoe Mines ( IVPAF ).

Imports from Russia more than doubled year-on-year in

January-February, suggesting the delayed Ozernoye mine is now

also ramping up production.

Improved concentrates availability and recovering spot

treatment terms are encouraging Chinese zinc smelters to lift

run-rates.

Production of refined zinc in the world's largest producer

fell by 3.4% last year, according to ILZSG.

Output was still down by 3.0% in the first quarter of this

year, according to SMM, but the data provider's latest survey

suggests production in March itself was up by 4.0% on March last

year. Output is expected to rise even faster in April.

FEEDING THE BEAR NARRATIVE

If mined output continues to rise, Chinese smelters will be

more than happy to process it into more metal.

Which is why zinc is out of favour with metals analysts

right now.

Global demand grew by just 0.1% last year, according to

ILZSG and zinc's prospects this year don't look encouraging.

Zinc's heavy usage in construction leaves it exposed to a

globally weak sector, while demand from the broader

manufacturing sector will be buffeted by U.S. President Donald

Trump's tariff turbulence.

The prospect of too much supply flowing into a weak-demand

environment is why LME three-month zinc has fallen below

the $2,600-per ton level for the first time since August and is

now down by 13% on the start of the year.

ANOTHER SURPRISE?

The scale of the zinc price collapse injects a note of

uncertainty into the market's bear script.

Were the zinc price to fall much further, it would be back

at the depressed levels that caused multiple mine suspensions in

2023, contributing to last year's scarcity.

Zinc supply has proven to be highly price sensitive in

recent years, which is why raw material supply-chain dynamics

can shift quickly, wrong-footing smelters.

Last year's smelter processing benchmark proved an

unreliable guide to how the zinc raw materials market ended up

playing out.

The jury is out on whether this year's will be any more

reliable.

The opinions expressed here are those of the author, a

columnist for Reuters

(Editing by David Evans)