China’s zinc margins crushed as fees plunge to record lows

Chinese zinc smelters are being tested by a worsening feedstock shortage that has driven processing fees to historic lows and wiped out profits.

Treatment charges on imported zinc concentrate have slumped to minus $50 a ton, a record low in Fastmarkets data going back a decade. China produces about half the world’s refined zinc, used to galvanize steel, but relies heavily on imports of ore. The last time smelters had to contend with negative fees was 2024, which triggered output cuts in order to stem losses.

Zinc smelting in China is prone to the same overcapacity issues that affect other metals from copper to steel. The situation has been compounded by a shortage in feedstock. War in the Persian Gulf has disrupted Iranian supplies, while deliveries from a major new mine in Russia have fallen short of expectations. Most recently, shipments from a mine in Cuba have been halted by the US blockade of the island.

Smelters began cutting production last month, and may expand curtailments in July and August as overall margins are increasingly likely to turn negative, Liu Xiaoyi, an analyst with Zijin Tianfeng Futures Co., said in a note.

In the copper market, treatment charges also hit an all-time low this month of minus $97.50 a ton. But there haven’t been notable production cuts as yet. Smelters have turned increasingly to scrap metal as a substitute for concentrate, and margins have been supported by a surge in sulfuric acid prices, a byproduct of the smelting process.

While international zinc prices have risen 14% this year, benefiting from a broader rally in base metals, the Chinese market remains oversupplied due to a contraction in steel demand. That surplus is now likely to ease, which should help keep prices elevated, said Liu.

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