Zinc presents the most striking contradiction in base metals right now. The ILZSG forecasts a refined zinc surplus of 271,000 tonnes in 2026 — the largest surplus among all the base metals. Global mine production is rebounding after three years of decline, with Brazil, Canada, Norway, and China all adding concentrate. Chinese refined zinc output surged by over 600,000 tonnes in 2025 as treatment charges recovered. The numbers point to a well-supplied market.
But the exchange tells a completely different story. LME zinc stocks have collapsed to the point where they cover less than three days of global consumption. Argus Media reports that critically low inventories have created steep backwardation on the LME, slowing negotiations for 2026 long-term contracts in Europe. Some market participants say discussions haven't even begun. The backwardation means the spot price exceeds the forward price — a signal of acute physical tightness, not an impending surplus. The ILZSG's 271,000-tonne surplus is a forecast based on expected production. The physical market is trading on what's actually available right now, and that is very little.
Two smelter accidents have tightened refined supply at exactly the wrong moment. A fatal explosion at Glencore's Kazzinc operation in Kazakhstan cut output at one of Central Asia's largest zinc refineries. A fire at Nexa Resources' Cajamarquilla smelter in Peru — which is now slowly restarting — removed additional capacity from a market with no inventory buffer. These are not trivial outages. Combined with China's construction-driven zinc demand, which remains flat but not collapsing, the outages have kept the physical market tighter than the headline surplus numbers suggest.
Treatment charges tell the story from the smelter's perspective. The China Zinc Smelter Purchase Team set Q2 2026 guidance at just $35–70/t at their March 25 meeting in Chengdu, down from $105–120/t previously. Spot TCs into China had already fallen to $0–30/t cif by mid-March 2026, with some premium-grade concentrates — the kind with high silver or lead by-product content — trading at zero or even negative TCs. A negative TC means the smelter pays the miner to take the concentrate, surviving only on by-product credits from sulfuric acid and precious metals. Fastmarkets reported in late May that Chinese zinc smelters were discussing possible production cuts as TCs hit historic lows. Sulfuric acid prices have risen to 900–1,000 yuan/t, providing a temporary cushion, but the primary margin on zinc smelting has effectively vanished.
The demand picture is soft but not collapsing. The ILZSG forecasts global refined zinc demand growing just 1% in 2026 to 13.86 million tonnes, with Chinese demand flat as the real estate slump persists. In the US, zinc ingot prices fell 2.7% in late June as galvanizers and alloy producers cut procurement during the seasonal slowdown, according to ChemAnalyst. Tight concentrate supply and negative TCs are restricting smelter throughput, offering partial support to physical premiums. European demand is forecast to grow modestly — about 0.7% — as automotive and construction sectors stabilize.
Analyst price views are split along the same fault line that divides the ILZSG surplus forecast from the LME inventory reality. Goldman Sachs, Citigroup, and Macquarie are in the bull camp, with 2026 forecasts in the $3,200–3,600/t range and upside to $4,000/t if LME stocks fall to critical levels. They see a seller's market defined by physical tightness. On the other side, Morgan Stanley calls for a 2026 average of $2,900/t. Fastmarkets expects global surpluses in 2026–27 as mine and smelter expansions outpace tepid demand growth, projecting prices to decline from 2025 averages. StoneX sees zinc pulling back from sub-$3,000/t levels as increasing supply and modest demand allow global stocks to return to more balanced levels.
The key variable for H2 2026 is whether Chinese smelters actually cut production. If TCs stay at zero or negative and sulfuric acid prices weaken, smelter margins go deeply negative. Production cuts would quickly tighten the refined market further, regardless of how much concentrate arrives at the smelter gate. Expansion projects at Rosh Pinah (Namibia) and Vedanta's Gamsberg (South Africa) are expected to come online toward mid-2026, and new greenfield capacity at Tala Hamza in Algeria is scheduled to start this year. These additions, combined with recovering mine output, should eventually rebuild inventories. But 'eventually' takes 6–12 months in the zinc market, and buyers cannot wait that long.
LME zinc backwardation means spot purchases cost more than forward contracts — but the backwardation is concentrated in the nearby months. For Q3 and Q4 delivery, the forward curve flattens. Lock in Q4 delivery at the current forward price now, before smelter production cuts or further inventory drawdowns extend the backwardation further out on the curve. For galvanizers and alloy producers, the strategic risk is not the price level but availability: with less than three days of global demand in LME warehouses, any supply disruption — a smelter outage, a logistics bottleneck — creates immediate physical shortages. Maintain 4–6 weeks of inventory cover rather than optimizing for just-in-time. If Chinese smelters announce coordinated production cuts in Q3, expect zinc to spike $400–600/t within two weeks. Pre-negotiate force majeure clauses with suppliers now, not after the spike.