Prices

Last year was another record-breaking year for the zinc spot price following on from the record high seen in 2021. Dwindling zinc stocks and further smelter cuts due to energy costs, particularly in Europe, pushed the zinc price to record highs in the first half of 2022. The average AME Europe Zinc Spot Price for 2022 was US$3,506/t, a 16.6% increase from 2021. The price peaked during April, reaching a daily high of US$4,527/t.

The average AME Asia Zinc Spot Price for 2022 was US$3,461/t, a 10.2% increase from 2021. The price peaked in April when it reached a daily high of US$4,297t.

The lead price has remained more muted in 2022 with little fluctuation seen throughout the year. The average AME Europe Lead Spot Price for 2022 was US$2,148/t, a 2.6% decrease from 2021. The average AME Asia Lead Spot Price for 2022 was US$2,112/t, a 3.7% decline from 2021.

Treatment Charges

In April, Korea Zinc and Glencore agreed with Teck Resources to the 2022 zinc treatment charge of US$230/t, up 44.7% from the 2021 treatment charge of US$159/t. The sharp increase signalled the change to stability and move to surplus in the concentrate market and increasingly short supplies of finished zinc production, on the back of surging energy costs across Europe.

Escalators also returned for the first time since 2018. Including a newly reinstated clause giving plants exposure to the high zinc prices. The escalators kick in when the zinc price is above US$3,800/t, effectively raising treatment charges by 5%. The reinstatement of escalators signals a power shift back to smelter owners, which looks set to remain in the immediate future.

The AME zinc spot treatment and refining charges (TC/RCs) for imported concentrate have continued to escalate throughout 2022. Starting January at an average of US$80/t they have risen to a high of US$265/t by November. This high spot price highlights the reduced availability of smelters due to high energy costs.

In 2023, it is expected smelter production cuts could remain for an extended period, concentrate availability is expected to increase as new projects come online. Combined with a muted demand from smelters its likely in the short term we will see an increase in global surplus of zinc in concentrate with the refined zinc deficit shrinking from 2022 numbers. It is likely the TC/RCs will remain high in 2023. 

Imports and Exports

In contrast to 2021, during 2022 the refined market has been incredibly tight due to a raft of smelter curtailments, the concentrate market has widely recovered from the deficits seen in 2021, however due to scheduled mine closures and delays in new capacity coming online due to supply chain issues we can still expect the concentrate market to remain muted.

Chinese imports of refined zinc have been particularly low in 2022 sitting at 54kt from January to September down 83.6% from the same period in 2021 when imports were 329kt across the same period. China’s construction industry faced crisis in 2022 with the collapse of some of its biggest players.

The import and export of refined zinc, which is primarily used in the galvanising of steel, slowed as the year progressed, due to escalating inflation and economic instability there has been dulled demand for galvanised steel coming from the construction and infrastructure industries.

The slowdown was caused by continued instability surrounding Covid-19 lockdowns along with factors such as the global semiconductor chip shortage, which has hindered automobile production, and the Chinese property development slump following the tightening of monetary regulations in 2020.

Stocks 

Throughout 2022 both LME and SHFE zinc stocks have been virtually depleted. Beginning the year at 197.9kt at the beginning of January LME zinc stocks have fallen to 36.7kt as at December 12^th, 2022. European and American warehouses are threadbare, with stocks at 0.03kt and 0.35kt respectively.

LME stocks in Asian warehouses fell to 39.55kt in December from 120.35kt in January. The large curbs on finished zinc production mean it is unlikely these stocks will increase in the short term until such time as production restarts.

Closures and Production Cuts

The year 2022 was awash with smelter closures, particularly in Europe as surging power costs, made worse by the Russia-Ukraine war, have meant the energy intensive zinc smelting process has no longer become profitable, despite prevailing high zinc prices.

Following their production cuts in 2021 Nyrstar have not restarted any of their smelters to full production. During 2022 in August the Budel smelter in the Netherlands was placed on to care and maintenance, operations were restarted at reduced output in November. Also, in November following scheduled maintenance work, Nyrstar announced they would not be restarting production at the Auby smelter in France, in light of challenging market conditions.

Nyrstar had previously placed the smelter onto care and maintenance between January and March 2022, with operations resuming at a limited capacity. The Auby smelter has a total capacity of 172ktpa of zinc when running at full capacity.

Glencore placed its Nordenham zinc smelter in Germany on care and maintenance from the 1st of November. This follows the suspension of production at its Portovesme smelter in Italy in November 2021, which is also yet to come back online. Glencore also revised its 2022 guidance in October to reflect increasingly complex logistics and supply chain issues in Kazakhstan as the secondary impacts of the Russia-Ukraine war continue to be felt throughout the CIS region.

In Kazakhstan, Glencore own 69.7% of Kazzinc the main zinc producer in the region. Glencore said that trade flows had been adjusted to avoid Russian territory, while some equipment suppliers had curtailed business relationships across the entire CIS region.

There have also been some large mine closures in 2022. In April Trevali Mining Corporation closed the underground Perkoa mine in Burkina Faso, following a flash flood which resulted in eight fatalities.

In June Hudbay Minerals Inc. announced that mining activities at its 777 mine in Manitoba, Canada, concluded after reserves were depleted following 18-years of steady production. The mine commenced production in 2004 with an initial ten-year mine life. It operated steadily and successfully expanded reserves by an additional eight years. After extensive drilling in and around the mine in recent years, no new deposits were identified, leading to the closure. Hudbay’s hydrometallurgical zinc facility in Flin Flon also closed after more than 25-years of operations.

Also, in June Glencore closed the final mine in operation at the Matagami mine, the Bracemac-McLeod site. The Bracemac-McLeod mine located in Quebec, Canada had been in operation since 2013, the wider Matagami mining camp had been in operation since 1963 and comprised 12 mines all of which have now been decommissioned.

In November Red River Resources appointed administrators to its wholly owned subsidiary Cromarty Resources, owner and operator of the Thalanga mine in Australia. Administrators determined to place the Thalanga operations on care and maintenance. The appointment follows operational issues at the mine. Red River suspended underground operations at Thalanga from 2nd August until 19th August, following a ‘fall of ground’ event in a stoping area.

New Mines, Restarts and Expansions

As supply chain issues have persisted throughout 2022, there have been few new mines coming to fruition. Nexa Resources-owned Aripuanã mine is one of the exceptions coming online in the December quarter of 2022 with full production expected by the June quarter of 2023. Aripuanã, located in Mato Grosso, Brazil, is set to be is one of the industry’s most sustainable mining projects, with nearly 100% of water recirculation and the use of dry stacking and cemented paste backfill for the waste material.

The Abra base metals project owned 60% by Galena Mining Limited and 40% by Toho Zinc Co., Ltd. achieved 97% construction completion at the end of November 2022. The lead-silver mine located in Western Australia, ore is currently being mined from underground and is being stockpiled in readiness for processing to begin in January 2023. Concentrate production will commence January 2023. The mine is set to produce approximately 95ktpa of lead and 805kozpa of silver over a 16-year life.

Mergers and Acquisitions

In February Develop announced that it had agreed to acquire the high-grade Woodlawn zinc-copper project which is located in the world-class Lachlan Fold belt in NSW, Australia, for an upfront consideration of A$30m (US$22m) and success-driven milestone-related payments of up to A$70m (US$50m).

The past-producing mine was previously developed by Heron Resources Limited, who invested around A$340m (US$244m) in the project before it was put on care and maintenance in March 2020 and Heron was placed in administration in July 2021.

In March Apollo Minerals Limited secured 100% ownership of the Kroussou zinc-lead project in Gabon via consolidation of agreements with Trek Metals Limited and Battery Minerals Limited. The Kroussou project has the potential to be a super-giant project with an exploration target of over 300Mt.

In July Trafigura announced that they had entered into a binding agreement for the purchase of Ecobat Resources Stolberg lead smelter in Germany. The Stolberg multi-metals processing plant, which was founded in 1848,  is one of the largest and most modern primary multi-metal smelters in the world. 

It will be operated and managed by Nyrstar, which is 98%-owned by the Trafigura Group. Stolberg has the capacity to produce 155ktpa of lead and more than 100 different specifications of market-leading lead alloys, it also produces 130ktpa of sulphuric acid.