Until very recently, zinc has held the positions as the weakest performing base metal in 2025, with loosening fundamentals and low investor interest limiting price gains on a global basis. However, over the last quarter, the outlook for zinc has altered, and it was the best performing base metal in Q3. This is being driven by regional parameters, with a sacristy of units in Europe, steady demand in Asia-Ex-China and a high premium for units in the US (ahead of potential US tariffs), drawing zinc from Asian LME warehouses. As it stands, LME zinc’s forward curve is posting a widening backwardation out to Dec-26, with the LME-3M spread having jumped to its largest backwardation on record at $320/t. In turn creating a building divergence in global zinc prices, muddying a clear market trend. In this article we address the outlook for zinc in the months and year ahead.
LME Cash-3M Spread
Source: Bloomberg, StoneX
LME Versus SHFE Zinc Prices YTD
Source: Bloomberg, StoneX
LME Zinc’s Predicted Squeeze Has Materialised
At the time of writing (22nd October), LME zinc closing stocks stand at just 35,300t, their lowest level since March 2023, having fallen by 85% YTD, covering less than one days’ worth of demand. Since mid-April, stocks have been moving consistently lower, with outflows largely stemming from Singapore warehouses, feeding real world demand in Europe and ex-Asia as smelters’ margins suffer from high energy prices and/or lack of ore availability (following three years of global mine production having been in decline over 2022-2024).
In addition to this, units are also being drawn into the US, with concerns that the outcome of the Section 232 investigation into Critical Minerals (launched in April) could result in import tariffs on zinc, in which the US has the highest import reliance on of any refined base metal, standing at 75%). With the investigation having 180 days to run, the markets are expecting an announcement this month, accelerating the desire of market participants to take advantage of highest domestic premiums, altering historical trade flow patterns.
Table of US Import Reliance of Refined Base Metals
| |
US Imports as & of Demand
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|
Aluminium
|
82%
|
|
Zinc
|
75%
|
|
Tin
|
73%
|
|
Nickel
|
48%
|
|
Copper
|
45%
|
|
Lead
|
28%
|
Source: Bloomberg, USGS, StoneX
Volatile stock movements are often recorded in the zinc market, why is this time around different?
Unlike in 2024, when we saw whipsaw movements in material being cancelled and then re-warranted in LME warehouses (Singapore), in which trading houses and warehouses would engage in rent-share deals. This time around, material which has been cancelled appears not to be coming back. For example, on a YTD basis, Singapore on-warrant stocks are down 140,175t, versus a net import of 26,875t during the same period in 2024.
Zinc LME Singapore Warehouse Annual On-Warrant Stocks (Change t)
Source: Bloomberg, StoneX
China’s View on Zinc is More Muted
The domestic view on zinc in China is more measured, with plentiful inventory (SHFE stocks well above five-year averages) and robust production (up 3.9% YTD Y/Y versus 0.8% in 2024), set against a weak outlook for zinc’s largest end-use, the contruction market. Indeed here, an acceleration in global mine production has resulted in net imports of zinc ore into China jumping to their highest level on record in September <500,000t. While imports from the US were almost non-existent given the 10% retaliatory tariffs imposed by China on US imports (impacting trade from the largest zinc mine in the world, Teck Resources Red Dog), we can see exports have risen from Australia, likely with shipments having been switched to avoid tariffs.
Seasonality Chart: SHFE On-Demand Stocks
Source: Bloomberg, StoneX
Chinese Refined Zinc Production Versus International RCTCs
Source: Bloomberg, StoneX
What would it take for the LME Zinc backwardation to soften?
- On the LME, there are six long holders with cumulative cash positions amounting to three times the quantity of stock available, if profit taking occurs, we could see material come back onto the exchange.
- Chinese smelters find the arbitrage attractive to ship material into the LME, most likely with the LME Hong Kong warehouse the first port of call (with 425t having entered warehouses at the time of writing).
- A ruling on Section 232 investigation into critical minerals, resulting in an unwinding trade to send material into the US.
In our view, we expect the tightness in the zinc market to remain until we start to see one or multiple of the above scenarios unfold, likely to keep LME prices in a tightly higher trading range ~$3,000/t.
Zinc LME Asian On-Warrant Stocks in Asian Warehouses
Source: Bloomberg, StoneX
Given this background what are our expectations for zinc prices in 2026?
Over the course of 2026, we see zinc prices pulling back from these <3,000/t levels, with increasing supply and still a modest demand outlook allowing global stock to return to more balanced levels.
Will China become a net exporter of zinc in 2026?
The last time we saw meaningful volumes of zinc exports was in 2022, in the aftermath of Russian invasion of Ukraine (where high energy prices resulted in smelter closures). In May 2022, exports spiked to 35,000t, this year they’ve averaged 1,200t a month. We do not anticipate that China will become a net exporter of refined zinc this year, especially given risks to domestic supply with country-based RCTCs weakening. Here, expanding smelting capacity set against weak domestic zinc prices (given high inventory levels and weak demand), means we could see some smelters go on care and maintenance. However, this is unlikely to be significant enough to destabilizing raw material supply chains as a whole.
Please see below our Fundamental Outlook for Zinc in 2026
Global mine supply is on track to rebound in 2025 and 2026, following three years of prior declines. This will be supported by double-digit growth in Africa (DRC’s Kipushi mine) and increasing output in Peru, China, and across Europe, Bosnia & Herzegovina (Vares operation), Ireland (resumption of operations at Tara mine in October 2024) and Russia (commission on of Ozernoye mine in September 2024).
Record Low Benchmark RCTCs to Recover on Increasing Ore Supply
In turn, this will allow refined output globally to recover in our forecasts after posting a decline in 2024. We see gains concentrated in China, in which increasing availability of zinc ore (up 45% over January-July versus a 22% decline over the same period Y/Y), is expected to help lift annual record low RCTCs this year ($80/t) towards $160/t in 2026, with current zinc prices no longer challenging smelter profitability. Note, Chinese production in August rose to a 17-month high, with the domestic market forecast to enter a surplus to year-end. In addition, the ramp up of operations in Q4 2025 of China’s Kunlun smelter is expected to add 560,000t/y of production (almost equivalent to the annual level of net imports of refined zinc into the country), although we do not expect China to become a net exporter of material.
Higher Prices Dependent on Sustained Demand, Prospects are Modest
Zinc’s significant exposure to the galvanising industry (~50%) leaves a recovery in demand vulnerable to future investment plans, particularly in major demand countries like China, Europe and the US, with demand growth in China on a deaccelerating track in traditional demand areas. With this in mind, we expect consumption to by led by demand ex-China (India and Asia Ex-China), however, uncertainty and a lack of investment decisions given a new trading landscape will remain a headwind.
Market Balance
Source: Bloomberg, StoneX
Consumption Ratio
Light blue line: LME 3M Annual Average Zinc Price. Dark Blue Bars: Consumption Ratio (total visible exchange stocks/annual demand in days).
Source: Bloomberg, StoneX
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