No need to get back to the economics textbooks package. The problem for zinc smelters in China and NCZ is very much one for the next 12-18 months (i.e short term). A number of old smelters need to upgrade their facilities to treat their waste product (namely jarosite) or they cannot operate or if they can operate they do with very limited capacity hence we find ourselves in a market where there is . Now NCZ made big claims that they would be spitting out cash once in operation and use that to fund multiple expansion projects, rehab costs (and I believe there was even talk about returns to shareholders) - the reality is that they may need to raise additional funds soon to keep operations going.
I have outlined previously (here :
https://hotcopper.com.au/posts/37216760/single) why I think NCZ con is less attractive for a smelter compared to say a Dugald River and especially Red Dog based while it is producing sub 50% Zn grade con (not withstanding the other complexities of NCZ) - so unless NCZ takes massive haircut when selling their con (via higher TC than current spot) to compensate the smelter for the lost Zinc revenue the smelter can easily tell NCZ thanks but no thanks on their con - delaying shipments, payments etc. What is worse for NCZ while it is producing off-spec - while the Zn prices are going higher the discounts will also be going higher for their con.
In the longer term absolutely the scarcity of metal will push smelters to upgrade/expand their facilities so they can make money with the surplus of zinc concentrates & high prices. Bear in mind that this will bring down both the TCs and Zn prices as more metal becomes available.
So a large part of this bull run in prices happening right now I think will unfortunately be missed by NCZ
What you would see in a structurally tight metal market is that both the raw material where concentrates TCs are low and refined metal premiums and prices are high. Not happening right now in the Zn market where only one side is tight.
