Six months ago, the zinc market consensus was unmistakable: surplus. At its twice-yearly meeting in October 2025, the ILZSG projected global refined zinc production would rise 2.4% to 14.13 million tonnes in 2026, comfortably exceeding demand growth of 1.0% to 13.86 million tonnes. The resulting 271,000-tonne surplus was seen as a price-ceiling mechanism — a buffer that would keep LME zinc from rallying aggressively. (FACT: ILZSG, October 2025)
What changed. The first signal came in early 2026, when ILZSG's preliminary data showed that 2025 — originally expected to be in modest surplus — had actually recorded a deficit of 33,000 tonnes. Global refined zinc production grew just 2.1% in 2025, with all of the increase concentrated in China (+6.1%). Output outside China fell 1.6% as Western smelters cut back in response to low treatment charges, high energy costs, and operational closures. Meanwhile, global demand increased 1.9%, with strong growth in China and India. (FACT: ILZSG, February 2026; Scrap Monster)
At its April 2026 meeting, ILZSG formally acknowledged the paradigm shift. The group revised its 2026 outlook to a 19,000-tonne deficit, citing the same structural forces: mined output surging 4.8% year-on-year in 2025, but refined output constrained by a Western smelter bottleneck that shows no sign of easing. Chinese refined output is projected to grow another 3.0% in 2026, but Western smelters — facing what Reuters has called a "critical minerals crisis" in the smelting sector — cannot keep pace. (FACT: Reuters, May 20, 2026; ILZSG, April 2026)
The deficit is now being compounded by operational disruptions that ILZSG could not have modeled. The May 5 blast at Glencore's Kazzinc smelter (capping ~300,000 t/yr of capacity) and the May 13 fire at Nexa's Cajamarquilla smelter (345,000 t/yr) have removed an additional layer of Western supply that was assumed available when the April projections were finalized. If either disruption extends into Q3, the 19,000-tonne deficit projection will need further downward revision. (FACT: Reuters, May 5 & May 13, 2026)
The inventory picture confirms the tightening. LME zinc stocks — registered and off-warrant combined — sit at roughly 156,000 tonnes, compared to the 2024 peak of almost 400,000 tonnes. The LME inventory buffer has been shrinking even as mine output grows, because the pinch point is smelting capacity, not mining capacity. Fastmarkets notes this structural disconnect: the concentrate market is awash, but the smelters that convert it into metal are struggling. (FACT: Reuters, May 20, 2026; LME data)
LME three-month zinc has responded accordingly. Trading near $3,600 per tonne in late May, zinc has gained roughly 13% year-to-date and hit a near four-year high in the aftermath of the Kazzinc and Cajamarquilla disruptions. With the ILZSG surplus fully erased and physical supply tightening, the path of least resistance remains upward. (FACT: Reuters, May 20, 2026)
The ILZSG's next meeting will take place in October 2026. Unless Western smelting conditions improve markedly — which appears unlikely given the TC crisis and the two recent operational disruptions — the deficit projection for 2026 is more likely to deepen than to reverse.
Action: The ILZSG's complete reversal from +271,000t surplus to -19,000t deficit — a 290,000t swing — invalidates any procurement strategy built on the assumption of comfortably supplied markets. Immediately stress-test your H2 2026 zinc cost assumptions: add a $200–300/t risk premium to current LME levels for budget planning. For fixed-price contracts, negotiate volume flexibility to allow for allocation if physical availability tightens further. Consider monthly or quarterly pricing mechanisms rather than locking in annual fixed prices — the deficit dynamic is too fluid for static commitments.
Horizon: The deficit is structural, not seasonal. Western smelter constraints (low TCs, high energy costs, ageing plants) have been building for years and the Kazzinc/Cajamarquilla outages add acute pressure. Expect the deficit narrative to persist through at least Q1 2027.
Trigger: Watch for ILZSG's interim data releases and any further balance revisions. A monthly deficit print above 15,000–20,000 tonnes would signal the annual shortfall is accelerating. Track LME cash-to-3M backwardation — widening beyond $30/t confirms physical tightening is intensifying.