LONDON, June 13 (Reuters) - China's imports of zinc

concentrates fell sharply over the first four months of this

year in response to a tightening raw materials market.

Spot treatment terms for imported mine concentrates are

currently trading at levels that are uneconomic for many Chinese

smelters, forcing them to rely more on domestic mine supply.

It's probably no coincidence that flows of refined zinc into

the country have been much stronger than this time last year.

Such is the current dynamic of the global zinc market. There

is plenty of metal around but an ongoing squeeze on raw

materials due to weak global mine production.

TIGHT CONCENTRATES MARKET

China imported 1.18 million metric tons of zinc concentrates

in the first four months of this year, down 24% on last year's

equivalent tally of 1.54 million tons.

This is a pronounced change of trend after raw materials

imports increased by 13% and 14% in 2022 and 2023 respectively.

The cause is the collapse in treatment and refining charges,

which are paid by miners to smelters for processing raw

materials into refined metal.

Chinese smelters looking to buy on the international market

are facing rock-bottom terms of $30-50 per ton, according to

price reporting agency Fastmarkets.

This year's annual benchmark terms, set by Canadian miner

Teck Resources ( TECK ) and Korea Zinc in the

first quarter, came in at $165 per ton. That marked a hefty

discount from the 2023 benchmark of $274 but is already looking

very generous to smelters in light of the bombed-out spot

market.

The underlying problem is weak global mine output. The

world's zinc mines saw production fall by 2% in 2022 and another

1% in 2023. There has been no recovery so far this year, output

sliding another 3% year-on-year in the first quarter, according

to the latest assessment by the International Lead and Zinc

Study Group (ILZSG).

The squeeze on raw materials has been accentuated by

restarts of idled smelter capacity in Europe, reducing the

amount of concentrates available on the spot market.

PLENTIFUL METAL SUPPLY

While Chinese smelters are struggling to source concentrates

at economically viable prices, the country's imports of refined

zinc are trending higher.

Inbound volumes totalled 143,000 tons in the first four

months of this year, compared with just 35,000 tons in the same

period of 2023.

China turned a net exporter of zinc in 2022, a rare

phenomenon caused by multiple smelter outages in Europe due to

super-high energy prices.

Trade patterns reverted to historical norms around the

middle of last year with the export tap largely turned off ever

since and imports accelerating.

There is no shortage of refined metal.

London Metal Exchange (LME) stocks rebuilt from a depleted

30,475 tons to 223,225 tons over the course of 2023 and at a

current 255,900, they are up another 15% since the start of

January.

There has been a lot of churn in registered inventory this

year as stocks financiers play the warehouse arbitrage game but

the headline figure has largely held in a 250,000-260,000-ton

range since the start of April.

A wide contango across the LME zinc forward curve underlines

the abundance of metal right now.

The LME's benchmark cash-to-three-months time-spread

flexed out to a multi-year high of $62 per ton at the

end of May and again earlier this month. It was still close to

those levels at $57 as of the Wednesday close.

The ILZSG estimates the global market generated a supply

surplus of almost 300,000 tons last year, which explains why

there's so much metal around.

SHRINKING SURPLUS

The global zinc market remains in surplus, according to the

ILZSG, which estimates production exceeded usage by a

significant 144,000 tons in the first three months of 2024.

The Group's most recent forecast in April was for a

diminished 56,000-ton supply surplus over the year as a whole.

Key to that market balance assessment was a forecast that

mined supply will again under-perform, acting as a restraint on

refined metal production, particularly in China.

The country's zinc concentrates trade shows that dynamic is

starting to play out with a knock-on impact on smelter run

rates.

China's refined zinc output surge by 8% last year, according

to ILZSG. Production growth in the first quarter of this year

braked sharply to 1.6%, according to local data provider

Shanghai Metal Market.

However, the combination of China's increased refined metal

imports and still high LME inventories suggests there is a way

to go yet before the current concentrates squeeze turns into a

metal squeeze.

The opinions expressed here are those of the author, a

columnist for Reuters

(Editing by David Evans)