The consensus view that dominated zinc market planning through late 2025 — a large surplus, falling prices, ample availability — collapsed between the ILZSG's October and April meetings. The 271,000-tonne surplus forecast for 2026 was revised to a 19,000-tonne deficit. (FACT: ILZSG via Mining.com) The World Bank's April 2026 Commodity Market Outlook forecasts zinc around $3,000/t for 2026, with 2027 lower at $2,750/t — a view that assumes the current supply stress is temporary. (FACT: World Bank CMO Forecasts April 2026) This forecast argues the opposite: the supply constraints are structural, self-reinforcing, and accelerating. The question for H2 2026 is not whether the market is tight — it is how fast the tightness compounds.
Supply foundation
CONFIRMED: Glencore's 2026 mined zinc output will be 700,000-740,000 tonnes, down from 969,400 tonnes in 2025 — a 25% reduction confirmed in the company's Q1 2026 production report. (FACT: Glencore Q1 Production Report, April 2026) This removes approximately 250,000 tonnes of concentrate from the pipeline at a time when Western smelters are already competing for a shrinking pool. Separately, Kazzinc's zinc plant in Kazakhstan — 250,000-300,000 tonnes of annual capacity — suffered an explosion on May 5, 2026, and is operating at reduced capacity with no restart timeline announced. (FACT: Kazzinc statement via TradingView, Reuters) The Cajamarquilla smelter in Peru also experienced a fire on May 13 that is under control but adds to the cumulative operational risk. (FACT: Reuters, US News & World Report)
PROJECTED: The 2026 TC benchmark settlement — the single most important leading indicator for zinc supply — remains unsettled as of late May. The Teck-Korea Zinc negotiation is the bellwether. Fastmarkets reported the 2025 benchmark at $80/t, down from $165/t in 2024 and $274/t in 2023. For 2026, market participants are discussing zero to negative levels. (FACT: Fastmarkets — Teck-Korea zinc benchmark TC coverage) If the benchmark settles below $30/t, which Rzzro considers the base-case scenario, expect at least one more Western smelter to announce reduced output or permanent closure within 60 days. If it settles above $50/t, the closure risk recedes but does not disappear — the TC would still be below breakeven for most European and Australian smelters.
The range of supply uncertainty is directly determined by the TC outcome. A settlement below $20/t widens the 2026 deficit toward 80,000-120,000 tonnes as compounding supply losses overwhelm stable demand. A settlement above $50/t holds the deficit near ILZSG's 19,000-tonne estimate. The TC benchmark is the single variable that shifts the probability weight among the three scenarios laid out below. The World Bank's full April 2026 data set provides the baseline macro framework, but does not account for the accelerating pace of Western smelter attrition that the TC collapse drives. (FACT: World Bank CMO Full April 2026)
Demand foundation
Global zinc demand is dominated by galvanized steel (~50% of consumption), which in turn depends on construction (41-52% of end-use) and automotive (15-20%). The demand picture is regionally divergent. China — consuming approximately 50% of global zinc — faces deceleration: the May 19 macro data release missed expectations on retail sales, industrial production, and fixed asset investment, suggesting the construction-driven demand story is cooling. India and Southeast Asia, by contrast, are seeing steady growth driven by infrastructure investment; India's galvanized steel consumption grew 8% year-on-year in 2024-25. Europe's demand is flat-to-declining, constrained by high energy costs and weak industrial output. North America is stable but not growing meaningfully, supported by non-residential construction.
Demand risk sits asymmetrically to the downside. The ILZSG projects 2026 demand growth of approximately 1.0% to 14.00 Mt, with refined output near 13.99 Mt. (FACT: ILZSG via Mining.com) A synchronized global recession — Chinese GDP below 4%, US ISM Manufacturing sustained below 45 — would turn this modest growth negative, potentially flipping the deficit calculation. The World Bank's April 2026 forecasts embed a softening demand trajectory but not a collapse. Rzzro assigns a higher probability to the steady-demand scenario (1-2% growth) than a sharp contraction, but notes that the magnitude of downside demand risk exceeds the magnitude of upside demand surprise. The bull case for zinc depends on supply-side disruption, not demand acceleration.
Rzzro forecast position
Rzzro's base case is that the structural supply deficit persists through H2 2026, supporting LME prices in the $3,200-3,800/t range. The conviction behind this view rests on the self-reinforcing nature of the TC collapse: low TCs squeeze smelter margins, which reduces Western refined output, which tightens the market, which keeps TCs low. This feedback loop has no natural break without either a demand collapse severe enough to destroy smelter margins permanently or a mine supply response that rebalances concentrate markets — neither of which Rzzro sees as probable in the forecast window. The World Bank's April 2026 forecast of ~$3,000/t for 2026 and $2,750/t for 2027 sits below Rzzro's base case, reflecting what we believe is an underestimation of Western supply attrition in the Bank's modelling framework. The single most important variable that determines which scenario materializes is the 2026 TC benchmark settlement, expected within the next 4-6 weeks.
Three scenarios
Activation mechanism: The 2026 TC benchmark settles between $20-50/t. Kazzinc continues at reduced capacity but no full restart in H2. Cajamarquilla resumes normal operations within 30 days. No new major Western smelter closure is announced, but no restart of previously curtailed capacity occurs either. The deficit holds at ILZSG's 19,000-40,000 tonnes.
Narrative: LME zinc trades in a range supported by confirmed supply disruptions and Glencore's output cut, but capped by sufficient LME inventory (~80,000-120,000 tonnes) to prevent a backwardation squeeze. The TC benchmark at $20-50/t keeps Western smelter margins under pressure but does not trigger immediate additional closures. Chinese exports remain capped by the closed LME-SHFE arbitrage window.
Key triggers: Kazzinc restart timeline — if no update by August, probabilities shift toward bull case. LME on-warrant stocks above 120,000 tonnes would cap rallies. Glencore Q2 production report (July 2026) confirming 700-740 kt guidance. Chinese export data showing refined zinc flows.
Quarterly performance: Q3 2026 average: $3,200-3,600/t. Q4 2026 average: $3,300-3,800/t. H2 range: $3,200-3,800/t.
Procurement playbook: Lock 50% of H2 volume via LME forwards. Use zero-cost collars for 20% ($3,000 floor, $4,000 ceiling). Leave 30% for spot — capture any pullback below $3,200 caused by bearish macro headlines that do not reflect physical tightness. Increase spot buying in Q3 if LME stocks hold above 100,000 tonnes.
Activation mechanism: The 2026 TC benchmark settles at or below $20/t, triggering an immediate margin-driven closure or curtailment at a Western smelter of 150,000+ tonnes annual capacity. Kazzinc's reduced capacity persists into August. A compounding event — an energy-driven European smelter closure or another operational incident — pushes LME stocks below 60,000 tonnes.
Narrative: The deficit widens from ILZSG's 19,000 tonnes to an estimated 80,000-120,000 tonnes as cumulative supply losses overwhelm stable demand. LME backwardation emerges as a persistent feature, with cash premiums of $50-100/t over forward prices. Chinese exports increase but the LME-SHFE spread needs to widen further to make export economics viable — the Western market tightens in isolation first. Physical premiums in Europe and North America widen sharply as buyers scramble for available tonnage.
Key triggers: LME cash-3M backwardation exceeding $50/t. Any smelter force majeure announcement. TC benchmark settling below $20/t — accelerate coverage immediately on this signal. LME on-warrant stocks below 60,000 tonnes. Glencore lowering 2026 guidance below 700 kt in the Q2 report.
Quarterly performance: Q3 2026 average: $3,600-4,000/t. Q4 2026 average: $3,800-4,500/t. H2 range: $3,600-4,500/t.
Procurement playbook: If the TC settles below $30/t, increase coverage to 70% immediately using LME swaps — do not wait for the official closure announcement. If backwardation exceeds $80/t, use tom-next rolls for short-dated coverage. Prioritize physical tonnage with premium caps over paper-only hedges. The most cost-efficient coverage is LME forward contracts for 3-6 months out before backwardation deepens further.
Activation mechanism: A synchronized global demand shock. Chinese GDP growth falls below 4% in Q2 2026 and stays there. US ISM Manufacturing drops below 45 for two consecutive months. The ILZSG's 1.0% demand growth projection for 2026 turns negative as industrial production contracts across developed economies.
Narrative: Chinese smelters, facing collapsed domestic demand, export refined zinc at distressed prices, opening the LME-SHFE arbitrage window. LME inventories rebuild above 200,000 tonnes as Chinese metal flows West. The TC settlement moves higher — potentially above $80/t — as smelter demand for concentrate collapses. This is the signal that demand destruction has overwhelmed supply constraints. The market begins pricing toward the World Bank's lower 2027 view of $2,750/t.
Key triggers: Chinese Q2 2026 GDP growth below 4%. US ISM Manufacturing below 45 for two consecutive months. SHFE zinc stocks building above 300,000 tonnes. LME-SHFE arbitrage window opening for Chinese exports. TC benchmark settling above $80/t — the supply tightness narrative reverses.
Quarterly performance: Q3 2026 average: $3,000-3,300/t. Q4 2026 average: $2,800-3,200/t. H2 range: $2,800-3,300/t.
Procurement playbook: Reduce fixed-price coverage to 30% of normal volume. Keep maximum spot flexibility — every month of delay is a better price in a demand-driven downturn. Use deep out-of-the-money puts ($2,500 strike) as insurance against a reversal. Cash-and-carry storage makes sense: buy physical, store, sell forward at the contango. The bear case is the only scenario where deferring coverage is the correct strategy.