Korea Zinc's integrated smelting operations and diversified product portfolio are drawing renewed analyst attention as declining treatment charges for zinc concentrates continue to pressure profitability across the sector. According to Shinhan Investment & Securities, copper, sulfuric acid, and germanium production could help offset the impact of weakening margins in the company's zinc-smelting business. The global zinc market has presented a complex pricing environment in 2026.
Although global zinc supply exceeded demand in the first half of the year, London Metal Exchange zinc prices rose more than 20% from the beginning of the year, according to analysis from Shinhan Investment & Securities. The explanation for this apparent contradiction lies in inventory distribution rather than overall supply constraints. While Shanghai Futures Exchange warehouses accumulated 156,000 tons of zinc, immediately tradable inventories at the LME fell more than 60% from the year's start.
This regional concentration of inventories meant that despite adequate global supply, market-accessible zinc became scarcer, driving prices higher. However, rising zinc prices have not translated into improved smelter profitability. The critical issue is treatment charges, which have fallen to approximately negative $100 per ton for spot Chinese-imported zinc concentrates.
This negative treatment charge structure forces smelters to pay additional fees to secure raw material supplies, essentially reversing the traditional economics where smelters would be paid for their refining services. Shinhan Investment & Securities forecasts that profitability pressure on conventional smelters will persist through the first half of 2027, pending production cuts by Chinese smelters that would restore treatment charges to more favorable levels. Korea Zinc's business model, however, differs significantly from single-product smelters.
The company produces base metals including zinc and lead, precious metals such as gold and silver, and rare earth metals including indium and antimony. This diversified output structure allows the company to assess the combined value of multiple payable metals from the raw-material procurement stage and optimize recovery rates during the smelting process. Copper represents the first opportunity for margin offset.
Currently, 71.7% of exchange-held copper inventories are concentrated at the New York Commodity Exchange, having flowed into the United States in advance of potential tariffs. By contrast, available LME copper inventories total just 90,000 tons, equivalent to 1.2 days of global copper consumption. This regional supply imbalance has driven LME copper prices 51% higher than a year earlier.
These stronger copper prices could partially offset declining profitability from zinc-smelting operations. Sulfuric acid production provides additional support to earnings. Supply tightness has reached extreme levels, with Chinese sulfuric acid imports into Chile totaling zero tons in March.
This supply constraint increased cost burdens for hydrometallurgical companies dependent on sulfuric acid. Korea Zinc, however, produces sulfuric acid as a byproduct of its zinc and lead smelting operations. According to Shinhan Investment & Securities, Korea Zinc's gross profit margin on sulfuric acid reached approximately 10% in the first half of this year, sharply higher than the previous 2% to 3% level.
Although sulfuric acid does not determine overall profitability, it provides meaningful offset against declining zinc-smelting margins. Over the medium to long term, critical minerals including germanium are expected to command increased attention. China introduced an export-licensing system for germanium and gallium in August 2023, prompting countries to diversify supply chains.
As industrial demand for critical minerals continues growing, the U.S. announcement of Project Vault, designed to stockpile critical minerals, reflects this broader strategic shift. Shinhan Investment & Securities forecasts that the value of Project Crucible, Korea Zinc's integrated-smelter construction project in Tennessee, could increase significantly as critical mineral supply chains become more strategically important. Park Gwang-rae, analyst at Shinhan Investment & Securities, summarized the outlook: "Margin pressure from falling spot zinc treatment charges is expected to continue through the first half of 2027.
However, Korea Zinc can fill the gap with copper, sulfuric acid and germanium, while the U.S. stockpiling strategy could increase the value of Project Crucible. If higher precious-metals prices are added to the equation, they could provide further support for earnings improvement." The analysis reflects Korea Zinc's structural advantage in managing cyclical pressure on individual commodity positions through integrated, diversified production. Separately, Shinhan Investment & Securities noted that uncertainty surrounding corporate control of Korea Zinc has eased somewhat.
At an extraordinary general meeting held on September 9, Baek In-gyu, an audit committee member recommended by Korea Zinc's board, was appointed with support from 81.8% of voting rights represented at the meeting. The board was subsequently reshaped to comprise 12 members representing Korea Zinc's current management and seven representing Youngpoong and MBK Partners. Source: Maeil Business Newspaper (mk.co.kr), Shinhan Investment & Securities analysis
Source: mk.co.kr