Zinc presents a paradox in June 2026: the ILZSG projects a global refined surplus of ~102,000 t for the year, yet LME inventories have collapsed to multi-year lows. The disconnect between headline surplus and visible exchange stocks is the defining characteristic of the current market.
The inventory collapse reflects several factors. Chinese smelters have been stockpiling material domestically rather than exporting. Mine closures, including Glencore's Lady Loretta in Australia and declining grades at Teck's Red Dog, have tightened ex-China availability. The result is regional tightness and grade-specific scarcity that the global surplus headline misses.
The forward curve has shifted into sustained backwardation, with cash premiums over three-month prices reflecting immediate physical tightness. This creates rolling cost for anyone holding short positions and incentivizes physical holders to sell into the premium.
On the supply side, global mine output is expected to grow 2.4% to 12.8 Mt in 2026, recovering after three years of decline. New projects like Tala Hamza in Algeria and a zinc circuit at Asmara in Eritrea add to medium-term supply. However, these come online gradually, and near-term availability remains constrained.
Demand remains modest. Global refined zinc demand is forecast to grow ~1% to 13.86 Mt in 2026, with the galvanizing sector constrained by weak construction activity in China and subdued manufacturing PMIs globally.
With backwardation persisting and LME stocks at critical lows, zinc buyers face elevated spot premiums. Use LME swaps to manage the rolling cost of backwardation. For H2 2026, consider calendar spreads or forward contracts rather than spot purchases. If the ILZSG surplus materializes, expect backwardation to ease and forward prices to move below spot.