Zinc Smelters Subsidize Miners as Treatment Charges Plunge to Minus $50/t — Market Near Four-Year High

The zinc market is doing something it has never done before. Treatment charges — the fees that smelters charge miners for converting zinc concentrate into refined metal — have turned negative in China. In June, Fastmarkets assessed spot TCs for imported zinc concentrate at minus $50 per dry metric tonne. A negative treatment charge means the smelter pays the miner for the right to process the material. It is a distress signal from an industry where smelter margins have been crushed by a concentrate shortage that is now in its third year, and where the pipeline of new mine supply — though finally arriving — has not arrived fast enough to prevent prices from surging.

The 2026 annual benchmark, settled between Teck Resources and Korea Zinc at $85/dmt, was supposed to mark the turning point. Up $5 from the 2025 record low of $80/dmt, the benchmark reflected growing confidence that new mine supply — from Ozernoye in Russia, Kipushi in the DRC, Huoshaoyun in China, Tizapa in Mexico, and Lady Loretta in Australia — would ease concentrate tightness through the year. Those mines are indeed ramping up. The International Lead and Zinc Study Group (ILZSG) estimates these five projects alone will add 260,000 tonnes of contained zinc in mine supply in 2026. Combined with restarts at previously idled capacity, global mine output is forecast to grow 5.8% this year, according to Macquarie. But the ramp-up has been slower than expected — Ozernoye is running at approximately 60% of nameplate capacity, Kipushi faces logistical bottlenecks, and Huoshaoyun's high-altitude location in Xinjiang limits winter throughput. The concentrate that was supposed to flood the market by mid-2026 is arriving in a trickle.

Meanwhile, two smelter disruptions have removed refined metal from an already tight market. Glencore's Kazzinc complex in Kazakhstan has been operating at reduced rates since an explosion in late May damaged key processing equipment. Kazzinc has approximately 300,000 tonnes per year of zinc refining capacity. Nexa Resources' Cajamarquilla smelter in Peru, with 340,000 tonnes of annual capacity, is recovering from a fire-related shutdown in June and is not expected to return to full rates until September. JP Morgan, in a note that sent zinc prices higher in early July, cut its 2026 global refined zinc production forecast by nearly 300,000 tonnes, tightening the balance by a similar amount. The bank now expects LME zinc to average $3,400-3,500/t for the remainder of 2026.

The inventory data is stark. LME zinc stocks stand at approximately 110,000 tonnes, down from 230,000 tonnes at the start of 2025. On-warrant material — metal that is actually available for delivery — is substantially lower. The LME cash-to-three-month spread has moved into backwardation periodically through July, with cash premiums of $5-15/t over the three-month contract. SHFE zinc inventories, which were "well above five-year averages" through much of 2025 per StoneX analysis, fell 2.2% week-on-week in early July, signaling that Chinese domestic supply is also tightening despite a 3.9% year-to-date increase in refined zinc production. The Kunlun smelter in China — a 560,000 tonne-per-year operation that began ramping up in Q4 2025 — should be adding significant volume to the Chinese market, but those tonnes are being absorbed by galvanized steel demand that, while not spectacular, is steady.

The analyst community is divided in a way that matters for procurement strategy. Goldman Sachs maintains a 12-month target of $3,750/t, the most bullish major-bank call. JP Morgan sees $3,400-3,500/t for the remainder of 2026. Macquarie and Morgan Stanley are positioned on the bearish side: Morgan Stanley's 2026 average forecast is $2,900/t, implying a significant decline from current levels in H2 2026. What explains the $850/t gap between Goldman and Morgan Stanley on the same commodity? The disagreement is entirely about timing. Goldman and JP Morgan are focused on the here and now — disrupted smelters, depleted inventory, negative TCs. Macquarie and Morgan Stanley are focused on what happens when those five new mines finally reach full capacity and start producing 260,000 tonnes of additional concentrate per year. At that point, the logic goes, TCs normalize toward $160/t, smelters ramp up, refined metal flows into warehouses, and the price falls. The question for buyers is: when does 'at that point' arrive?

The Chinese market adds a domestic dimension that complicates the global outlook. Macquarie estimates that China will become a net exporter of refined zinc in 2026 for the first time in four years, exporting approximately 30,000 tonnes versus importing 209,767 tonnes in 2025. The Kunlun smelter, designed to process imported concentrate, is the primary driver of this shift. If Chinese refined zinc exports materialize at scale, they would provide a release valve for a tight global market — but they would also confirm that Chinese demand growth is insufficient to absorb domestic production, which is a bearish signal for medium-term prices. Fastmarkets' base case has zinc averaging $3,218/t for 2025 with a slight increase in H1 2026 before softening as surpluses build through 2027.

The forward catalyst chain begins with the smelter restarts at Kazzinc and Cajamarquilla. If both return to full rates by September, approximately 20,000-25,000 tonnes per month of refined zinc re-enters the market — enough to shift LME inventory trends from draw to build within 4-6 weeks. Second, the Q3 ramp-up data from the five new mines will determine whether concentrate tightness eases by year-end or persists into 2027. Third, China's Q3 GDP and industrial production data will signal whether galvanized steel demand — zinc's largest end-use at 60% of consumption — is holding up or softening further. Chinese real estate investment is forecast to decline 12.8% in 2026, removing a traditional pillar of zinc demand.