LONDON, Oct 9 (Reuters) - The global zinc market is

facing a sizeable supply deficit in 2024 as a raw materials

squeeze forces smelters to reduce production of refined metal.

The International Lead and Zinc Study Group (ILZSG) has

significantly revised its assessment of zinc market dynamics

since it last met in April.

A previously anticipated supply surplus of 56,000 metric

tons has been updated to a 164,000-ton supply deficit.

Mine production is now expected to fall for a third

consecutive year and smelter treatment terms, a good indicator

of raw material availability, have turned negative.

China, which hosts the world's largest smelter network, is

feeling the margin pinch and national production of refined zinc

is sliding at an accelerating rate.

SUPPLY CRUNCH

Back in April ILZSG expected mine production to rise by 0.7%

year-on-year in 2024. Just five months later, that forecast has

been slashed with mined zinc output now on track to fall by 1.4%

to 12.06 million tons, it said.

This will be the third straight year of sliding output with

anticipated 2024 production 5.7% lower than 2021, the last year

of the zinc mining boom.

Low zinc prices in 2023 took a heavy toll of higher-cost

operators, particularly in Europe, where the suspension of the

Tara mine in Ireland and Aljustrel in Portugal will cause

regional production to slump by 11.4% this year.

The resulting squeeze on smelter margins has become more

acute as the year has progressed. Spot treatment charges for

Chinese imports of zinc concentrates fell into negative

territory for the first time ever in August and have continued

sliding.

Local data provider Shanghai Metal Market assesses the spot

market at a negative $40 per ton, highlighting the mismatch

between smelter demand and raw material availability.

China's refined metal output was dropping even before some

of the country's top producers met in August to agree on curbing

run-rates.

The pace of decline has accelerated in the last couple of

months. SMM estimates zinc metal output was down by 7.6%

year-on-year in August and expects the gap to have widened to

10.4% in September.

ILZSG forecasts full-year Chinese output to be 3.4% lower

than 2023, contributing to a 1.8% drop in global production.

It's a dramatic change from April, when the group expected

refined output to rise by 0.6%.

The group's demand forecasts have been tweaked but not

significantly changed. Usage is expected to grow by 1.8% this

year with the rest of the world taking up the slack from China

as the core growth driver.

Chinese demand will rise by just 0.7% in 2024, reflecting

zinc's exposure to the country's struggling property sector.

Galvanised steel, widely used in construction, is zinc's most

important end-use sector, accounting for 60% of all demand, and

China has been the world's most active builder over the last

decade.

RECOVERY NEXT YEAR?

ILZSG expects this year's supply deficit to be followed by a

healthy 148,000-ton surplus in 2025 due to higher zinc prices.

London Metal Exchange zinc has recovered a lot of ground

since 2023, when it touched a three-year low of $2,215 per ton

in May. Three-month metal hit a year-to-date high of

$3,209 last week.

The improved price environment should encourage restarts.

Swedish producer Boliden has already announced the

reactivation of Tara in Ireland.

ILZSG expects global mined production to jump by 6.6% next

year from this year's distressed levels due to a combination of

restarts and the delayed ramp-up of the Ozernoye mine in Russia.

Better concentrates availability is expected to feed a 3.9%

year-on-year recovery in global refined zinc production and a

return to supply surplus.

However, that assumes both a speedy reactivation of

mothballed operations and no major unforeseen disruptions.

Within days of ILZSG finalising its figures, Ivanhoe Mines ( IVPAF )

announced a major downgrade of expected production from

its new Kipushi mine in the Democratic Republic of Congo.

This year's guidance has been cut from 100,000-140,000 tons

to 50,000-70,000 tons of contained zinc due to a combination of

operational teething problems and a lack of power.

As ILZSG's revisions since April clearly demonstrate, zinc's

supply dynamics are in a state of high flux right now and are

likely to remain that way for some time yet.

The opinions expressed here are those of the author, a

columnist for Reuters.