Zinc benchmark treatment charge cut for 2021

A cut in this year's zinc concentrate benchmark treatment charge for 2021 is expected by market participants to benefit the direct production costs of zinc producers in Australia and globally.

The 2021 benchmark treatment charge, set each year through negotiations between Korea Zinc and Canadian resources firm Teck Resources, has been set at $159/t, 47pc lower than $299.75/t in 2020, Australian zinc producer New Century Resources said. The 2021 benchmark will be retrospectively applied from 1 January. The benchmark treatment charge traditionally forms the basis for global pricing of zinc concentrate smelting contracts between mining firms and smelters.

New Century, with expected output of 140,000-160,000t in the July 2020-June 2021 fiscal year from its Century mine in Queensland, expects around 85pc of its offtake shipments in 2021 to occur against contracts linked to the $159/t treatment charge. Its contracts will average "a modest discount" to the benchmark treatment charge as a result of concentrate supply scale and quality, it said. Any remaining product not linked to benchmark treatment pricing is expected to be shipped against the variable spot treatment charge of around $70/t.

New Century said the drop in treatment charges is likely to reduce its C1 cash costs by around $0.14/lb of payable zinc metal. Treatment charges accounted for around 30pc of costs in 2020. Back-payment for shipments issued at higher treatment charge during January-March are anticipated.

New Century reopened the Century mine in 2018 after acquiring it from Chinese-controlled resources firm MMG, which also operates the larger Dugald River zinc mine in Australia. Concentrate from the Century mine is delivered to 12 smelters on three continents with silver providing by-product credits.

Tightness in the global zinc market continues to underpin price fundamentals with a current London Metals Exchange three-month price of around $1.29/lb or $2,850/t. This is partly because of prolonged Covid-19 related supply interruptions, particularly in South America, and buoyant zinc metal demand in China. The price has recovered from $1,822t on 23 March last year.

By Angus Macmillan