UPDATE 2-Korea Zinc wins 10 pct rise in treatment fees on surplus ore

Wed Feb 27, 2013 10:20pm EST

Related Topics

* Zinc concentrates oversupply boosts processing fee

* Deal includes price participation clause

* European, China firms still negotiating

By Silvia Antonioli

CANCUN, Feb 27 (Reuters) - Zinc smelter Korea Zinc has won a 10 percent rise in processing fees for 2013 with a top miner, setting a benchmark for industry terms this year and reflecting a shift in pricing power towards smelters from miners given heavy oversupply of zinc ore.

The deal between Asia's biggest smelter outside China and Canada's largest diversified miner Teck Resources sets a precedent for terms of other processing deals in Europe and China.

In the deal, fees climbed to $210.50 per tonne for 2013, from last year's benchmark of $191, delegates at an industry zinc conference told Reuters this week, based on a $2,000 per tonne London Metal Exchange (LME) zinc price.

European market zinc producers such as Nyrstar and Boliden are said to still be negotiating their treatment charges for this year and talks might drag on into next month, one source close to the negotiations said.

The Teck and Korea Zinc deal is expected to boost 2013 treatment charges by around 10 percent to Chinese smelters, which have not signed the annual fees with overseas miners, a manager at a large zinc smelter in China said.

When supplies of concentrate are in surplus, miners have to pay higher processing fees to smelters to refine it into zinc.

"Everyone expected the treatment charges to be higher as there is plenty of supply and less demand for concentrates from China compared with last year," a source at an Asian zinc producer said.

Most Chinese deals are made on a spot market basis and talks are expected to prove protracted this year due to rising concentrate supply, said analyst Bonnie Liu at Macquarie.

Chinese smelters are unlikely to receive the $210.50 that Teck has given to Korea zinc for 2013 shipments because large zinc smelters in China do not hold multi-year term contracts with the miner and would hold talks for one-year shipments, the source at the zinc smelter added.

"Last year, we only received yearly treatment charge of $120, lower than those for Korea Zinc," the manager said.

Spot concentrates to China were offered at treatment charges of around $120-$130 two weeks ago, traders said.

This year's agreement includes price participation, comprising escalators and de-escalators to cover fluctuations from the $2,000 basis price.

The escalator clause would make the treatment charges rise by 6 percent if the zinc price rises to between $2,000 and $2,500, by 5 percent if the zinc price climbs to $2,500-$3,000, 2 percent if the it goes up to $3,000-3,500 and flat thereafter.

On the downside, the de-escalator clause would make the fee fall by 2 percent if the price drops to between $2,000 and $1,500 and flat thereafter.

The global refined zinc market has been in supply-demand surplus since 2006, based on figures from the International Lead and Zinc Study Group (ILZSG). China's ore production rose by 13 percent last year.

Contacted by Reuters, Teck said it would not comment on confidential commercial discussions.

Korea Zinc was not immediately available for comment.

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