<article><p class="lead">Global refined zinc supply is poised to surge in 2020, outstripping demand in the short-term as consumption falls behind. </p><p>Profitable treatment charges to convert zinc concentrates into metal will continue to incentivise smelters to produce next year, adding more supply to the market. </p><p>"What is the most obvious thing when you look at zinc? It is the increasing production in China," a trader said. "It is a lot more — we are not talking about a gentle increase. With treatment charges where they are, the smelters turn the tap on and produce more."</p><p>Refined zinc production in China rose by 14.2pc on the year to 594,000t in November, while output in January-November rose by 9.9pc to 5.69mn t.</p><p>According to the International Lead and Zinc Study Group, global refined zinc production rose by 2.1pc in January-November to 11.18mn t, driven by significant output growth in China. This, with increases in Mexico and Peru, offset production declines in Europe, Australia, Canada, India and Kazakhstan.</p><p>Growing supply has further dimmed the market outlook for 2020 and many consumers are not expecting a demand recovery until the second quarter. Several steel galvanisers have delayed deliveries of special high-grade (SHG) zinc from this year to 2020, and they will remain well-covered at least until the first quarter. As a result, spot demand is expected to be low in the coming months.</p><p>This year's weak demand has created a surplus of zinc for many consumers, many of which have decided to finalise 2020 supply contract negotiations in January, as there is no pressing need for material. </p><p>Contracted volumes for 2020 are expected to fall because consumers are likely to have lower raw material requirements in the face of emptier order books. </p><p>"Everyone is worried — they do not have a good outlook for their order books. Consumers will stay conservative and will not book the usual contractual volume," one trader said.</p><p>Some contracts for small 2020 volumes were concluded at $120/t on an fca basis in December, but most consumers are preferring to wait until next year before finalising 2020 contracts. The premium of $120/t fca in Europe next year is $20/t below the benchmark of $140/t fca Rotterdam for 2019. </p><p><i>Argus</i>' spot premium for SHG zinc in Europe fell to a six-year low of $40-80/t in-warehouse Rotterdam on 25 November and has remained at that level since, as weak demand and persistent backwardation on the London Metal Exchange (LME) pressured the market.</p><p>The three-month LME zinc contract started 2019 at $2,396/t and peaked at $2,949/t on 1 April, before falling to $2,306.50/t on 30 December.</p><p><i>By Yoke Wong</i></p></article>
