The ongoing conflict between Russia and Ukraine has driven zinc prices to record highs which currently show no sign of slowing.
The European zinc spot price reached US$4,225/t on
the final day in March and is expected to remain high through the June quarter.
The sharp price increase is coming as a result of surging power prices globally
but particularly across Europe. The cost of power has already caused multiple
closures and production cuts across Europe, impacting the availability of
finished zinc.
The AME average Europe zinc price for the March
quarter of 2022 was US$3,750/t. The AME average Europe zinc price forecast for
the June quarter of 2022 is US$3,850/t. The AME forecast average Europe zinc
price for 2022 is anticipated to be around US$3,650/t, with prices anticipated
to normalise in the second half of 2022 but remain higher than seen in previous
years. This is set to be
another annual record high following that of 2021.
Due to the escalating power prices in Europe the
March quarter has also seen a widening divergence between the European and
Asian zinc prices. The average March prices showed a 5.2% difference deviation
with European prices soaring and the Asia zinc price high but remaining more
stable. The average AME Asia zinc spot price for the March 2022 quarter was
US$3,668/t. The AME Asia zinc price forecast for 2022 is US$3,625/t.
Supply chain logistics are also being impacted due
to ongoing Covid-19 mitigation measures, particularly in China where, in an
effort to achieve Covid-zero, widespread, frequent lockdowns have resulted in
transport being restricted leading to the containment of some smelter outputs
leading to concern over supply fulfilment.
Following negotiations, Korea Zinc and Glencore
agreed with Teck Resources that the 2022 zinc treatment charge will be set at
US$230/t. This marks a 44.7% increase in the 2021 treatment charge. The sharp
increase highlights move to surplus in the concentrate market and increasingly
short, finished zinc production due to surging energy costs across Europe.
Throughout 2022, concentrate availability is expected to increase but ongoing
energy issues finished zinc production looks set to continue to decline with
the global deficit growing. Escalators have also returned for the first time
since 2018. The Teck contracts include a newly reinstated clause that will give
plants access to the recent surge in zinc prices. The escalators will kick in
when prices are above US$3,800/t, effectively raising treatment charges by
5.0%. The reinstatement of
escalators signals the power is shifting back to smelter owners.
LME zinc stocks were down a further 2.7% from the
end of February, to 140.0kt at the end of March. European warehouses continue
to dwindle to historic lows of 0.50kt at the end of March 2022. LME stocks in
Asian warehouses have also continued to drawdown, sitting at 114.1kt.
The AME average Europe lead price for the March
2022 quarter was US$2,333/t. The lead spot price continues to remain stable
with AME forecasting the average 2022 European lead spot price to be
US$2,271/t.

