February 27, 2013 / 6:04 PM / in 5 years

UPDATE 1-Korea Zinc, Teck agree 10 pct rise in zinc treatment charges

* Zinc concentrates oversupply boosts processing fee

* Deal includes price participation clause

* European firms still negotiating

By Silvia Antonioli

CANCUN, Feb 27 (Reuters) - Canadian metals miner Teck and smelter Korea Zinc have agreed to processing fees of $210.50 per tonne in zinc for 2013, up more than 10 percent from last year’s benchmark of $191, delegates at the International Zinc Conference told Reuters.

This increase, switches the profitability balance at least a little, from zinc miners to zinc smelters, many of which posted losses last year.

An increase was largely expected in the market due to a heavy oversupply of zinc concentrates.

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 of concentrates from China compared with last year,” a source at an Asian zinc producer said.

China’s miners boosted output by 20 percent in January-November of last year while the country’s smelters slashed refined run-rates by 8.5 percent over the same period.

Last year, the zinc processing agreement between Teck and Korea Zinc helped to establish the 2012 benchmark at $191 a tonne.

This year’s agreement is based on a $2,000 per tonne London Metal Exchange (LME) zinc price and it includes price participation, comprising escalators and de-escalators to cover fluctuations from that 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 falls between $2,000 and $1,500 and flat thereafter.

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.

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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