The imposition of Western sanctions on Russia’s zinc miner Ozernoye has left the company grappling with severe operational disruptions, threatening to impact the global zinc supply in 2025. According to three industry sources, the sanctions have impaired Ozernoye’s ability to replace critical equipment damaged in a fire, putting its ambitious production targets at risk. As a result, industry forecasts of mined zinc supply may need to be revised downward, potentially exacerbating a shortage of zinc concentrate that is already contributing to surging zinc prices.
Ozernoye, one of Russia’s most prominent zinc mining projects, officially launched its production in September 2023. The company had previously announced plans to reach full capacity of 320,000 metric tons of zinc concentrate by 2025, a figure that represents a significant 2.5% of next year’s estimated global mined zinc supply of 12.86 million tons, according to data from the International Lead & Zinc Study Group (ILZSG). However, multiple sources with direct knowledge of the situation have revealed that Ozernoye has encountered difficulties in replacing essential components needed to process ore into zinc concentrate. These components were damaged during a fire in November 2023, just two months after the company began production.
The specific equipment in question, concentrator parts that play a vital role in turning mined ore into powder-form zinc concentrate, was originally designed and manufactured by Glencore Technology, a subsidiary of the Swiss mining giant Glencore. Glencore has extensive experience with zinc-lead deposits similar in composition to Ozernoye’s and has supplied the necessary equipment in the past. However, the imposition of U.S. sanctions against Ozernoye following the November fire has made it impossible for Glencore to continue providing these parts.
A Glencore spokesperson, while declining to comment on the specifics of the Ozernoye situation, confirmed that the company would “fully comply with all sanctions applicable to our business activities.” This leaves Ozernoye in a precarious position, as the specialized nature of Glencore’s concentrator parts means finding an alternative supplier is not a straightforward task.
The delay in ramping up Ozernoye’s production capacity is expected to have far-reaching consequences for the global zinc supply chain. Zinc is a critical metal used primarily in galvanizing steel to prevent corrosion, making it an essential component in construction, automotive manufacturing, and various industrial applications. The tight supply of zinc concentrate—the raw material from which refined zinc is produced—has already driven zinc prices to a 20-month high, with concerns mounting that the situation could worsen in the coming year.
The ILZSG, an international industry body that monitors global supply and demand trends in the zinc and lead markets, had initially forecast robust growth of 8.9% in new mined zinc supply outside China for 2025. A significant portion of this projected growth was predicated on Ozernoye’s planned ramp-up to full production. With the company now struggling to replace damaged equipment, there is growing uncertainty about whether it will be able to meet its targets. Should Ozernoye fail to deliver, the global market could face an even more pronounced shortage of zinc concentrate, leading to further price increases and supply chain disruptions.
In response to inquiries about the potential delays, Ozernoye issued a statement to Reuters saying that it plans to produce zinc concentrate next year in volumes “comparable to the previously announced targets.” The company emphasized that its equipment is being manufactured domestically by its “in-house design bureau” and expressed optimism about reaching “project capacity within a year from the start of commissioning.”
One source, however, suggested that production could start as late as November 2024, depending on the success of efforts to replicate the Glencore-designed concentrator parts. Ozernoye has reportedly enlisted the help of a Russian company, TEM Partner, to develop a substitute for Glencore’s system, though it remains to be seen whether this collaboration will prove successful.
In its statement, Ozernoye acknowledged that part of its flotation equipment had already been commissioned and that “the first batches of zinc concentrates have been received.” However, the company’s failure to provide concrete production targets to smelters and traders has raised doubts about the reliability of its supply schedule for 2024 and beyond. Without clarity on when the company will be able to achieve full-scale production, market participants are left guessing about how long the zinc concentrate shortage will persist.
Ozernoye’s challenges are compounding an already delicate situation in the zinc market, which has been plagued by other supply disruptions in recent months. In Australia, the Century mine declared force majeure, halting its production. Meanwhile, Ivanhoe Mines’ Kipushi project in the Democratic Republic of Congo (DRC) has experienced a slower-than-expected ramp-up, adding to the strain on global supply chains.
The scarcity of zinc concentrate has led to a sharp drop in zinc treatment charges (TC)—the fees smelters earn for converting concentrate into refined metal. As of the end of September, treatment charges had plummeted to negative $40 per ton, according to pricing agency SMM. This negative TC, which reflects the difficulty smelters face in securing adequate supplies of concentrate, has squeezed margins to the point that some zinc smelters have been forced to curtail production.
The zinc market is highly sensitive to shifts in supply and demand, and the current uncertainty surrounding Ozernoye’s output is likely to fuel further volatility. If the company is unable to resolve its equipment issues and meet its production targets, the global zinc market could face a prolonged period of supply shortages, keeping prices elevated well into 2025. Such an outcome would have significant implications for industries that rely on zinc as a key input, particularly the steel sector.
Zinc prices have already been rising in response to supply concerns, with the metal recently hitting its highest level in 20 months. Analysts warn that if supply shortages persist, the market could see further price hikes, which would raise costs for manufacturers and potentially slow economic growth in key sectors.
For Ozernoye, the challenge of navigating Western sanctions while trying to maintain its production schedule underscores the broader difficulties faced by Russian companies in the current geopolitical environment. The loss of access to critical foreign technology, compounded by supply chain disruptions caused by sanctions, has forced many Russian firms to explore domestic alternatives or partnerships with non-Western suppliers.
While Ozernoye is attempting to replicate Glencore’s technology through its collaboration with TEM Partner, it remains uncertain whether the company can achieve the same level of efficiency and reliability. Any delays in developing and deploying this replacement technology could further hinder the company’s ability to meet its production targets, potentially leaving a gap in the global zinc supply.
