Treatment charges (TCs), the fees miners pay smelters to process their ore, are likely to fall by at least 13 percent to $140-$150 a tonne or below for 2018 term contracts, from around $172 (£124) a tonne last year, according to four trader and analyst sources.

The fees are usually settled between major smelters and miners at the International Zinc Association's annual conference, this year kicking off on Feb. 11 in Carlsbad, California. The first contract to be agreed leads the way for other deals, becoming a global benchmark.

Lower fees would weigh on smelters, such as Belgium's Nyrstar (>> Nyrstar) or Korea Zinc (>> Korea Zinc Co Ltd), already grappling with thinning profit margins. But they would offer a further boost to miners like Canada's Teck Resources which have been benefiting from soaring zinc prices.

"We forecast TCs at $150 this year because concentrate is still very tight," said analyst Dina Yu at consultancy CRU Group in Beijing.

"We think the price-peak will appear in Q2 and then prices will retreat from Q3, due to recovering zinc concentrate and metal stocks."

The International Lead and Zinc Study Group expects a refined metal deficit of 223,000 tonnes this year after years of underinvestment following the commodity bust around 2014.

Giant mines such as MMG Ltd's (>> MMG Ltd) Century in Australia and Vedanta Resource's (>> Vedanta Resources) Lisheen site in Ireland have dried up in recent years, a gap that has only been partially filled by smaller mines and restarts. China's pollution crackdown and industry reform have also eroded supply.

KEEP ON GOING?

Treatment charges in spot markets, where there is scant surplus material, hit a record-low of $10 a tonne last month, with one trader saying that suggests zinc prices may keep climbing after rallying 60 percent in 2016 and 29 percent last year.

"TCs should have started turning. It seems the view now is that the 'wall of supply' is taking longer to materialise and could be in the lower-range of estimates," he said, as higher zinc prices have driven some miners to ramp up operations.

London Metal Exchange zinc prices , which rocketed to decade highs of $3,584 a tonne in late January, were trading around $3,410 on Thursday.

But processors have seen little gain. Nyrstar (>> Nyrstar) said in August that it still faced "a number of headwinds" from lower zinc TCs.

Zinc treatment charges in some years have a pricing component that is linked to LME prices. Smelters win a percentage fee increase every dollar the LME price increases above a set basis price. If the price falls, TCs also drop.

But last year, smelters agreed to accept zero exposure to price movements and some view the component as likely to be scrapped all together. For smelters to claw back this term they may have to accept much lower baseline fees, traders said.

CRU sees a 5 percentage point increase on a base price of $3,300 a tonne in 2018 and a 3 percentage point cut below that number.

(Reporting by Melanie BurtonAdditional reporting by Tom Daly in BeijingEditing by Joseph Radford)

By Melanie Burton

Stocks treated in this article : MMG Ltd, Korea Zinc Co Ltd, Vedanta Resources, Nyrstar