Glencore, the Anglo-Swiss commodity trading and mining multinational, has accumulated an unsold inventory of 25,000 metric tons of zinc due to the expansion and ramp-up of its Zhairem operation, part of its Kazzinc business in Kazakhstan. The accumulation was disclosed by Glencore’s Chief Financial Officer, Steven Kalmin, during a recent briefing call.
Kalmin elaborated on the logistical challenges contributing to this stockpile, noting the remote location of Zhairem and its considerable distance from processing facilities. “Some of it is exported in concentrates to China,” he explained, adding, “There’s a bottleneck in terms of rail cars and customs and clearing.” This geographical and logistical complexity has resulted in a significant inventory buildup, which is expected to remain at the 25,000-tonne level.
Concurrently, Glencore anticipates a substantial increase in its zinc unit cost for 2024, projecting a rise from 5 cents per pound to 18.6 cents per pound. This escalation is attributed to lower treatment charges (TCs), a critical revenue stream for zinc smelters that typically diminishes when zinc concentrate supplies are tight. The market has witnessed an unprecedented shortage of mined zinc concentrates due to various disruptions and delays, leading to a dramatic collapse of TCs since the beginning of 2024. Remarkably, this month saw TCs flip to negative for the first time, compelling smelters to pay instead of being paid for converting concentrates to zinc.
Despite these challenges, Glencore remains optimistic about offsetting the impact of lower TCs through improved byproduct gains. The rally in the prices of precious metals and copper in May has provided some relief, as these byproducts contribute positively to the company’s financial performance. Kalmin noted, “We will actually see a 2-3% reduction year-on-year in our zinc unit cost, quite a bit of that is to do with lower power prices, particularly in Europe, having been at extreme levels through ’22 and into early ’23, given scarcity and energy prices back then.”
Glencore’s zinc production has contracted over the past five years, following the divestiture of its shares in zinc projects in Bolivia and Peru. In the first half of 2024, the company’s own sourced zinc production stood at 417,500 tonnes, marking a 22% decline compared to the same period in 2019.
As Glencore navigates these operational and market challenges, its strategic responses and adjustments will be closely observed by industry stakeholders and market analysts.
