LME three-month zinc settled at $3,546/mt on July 3, up 2.04 percent from the previous week and extending the gains from the June 29 low of $3,475/mt. The Q3 2026 average stands at $3,517/mt. The curve remains in backwardation, with the cash-to-three-month spread fluctuating between $15-30/mt backwardation in recent weeks, signaling continued physical tightness. On the Shanghai Futures Exchange, zinc closed at 24,705 CNY/mt, up 0.16 percent.
The global refined zinc market is projected to record a surplus of approximately 271,000 mt in 2026, according to the International Lead and Zinc Study Group (ILZSG). This follows an estimated surplus of 85,000 mt in 2025. But the paper balance tells a very different story from the physical reality. LME warehouse stocks are critically low. In Q4 2025, exchange inventories were nearly exhausted, and despite the projected surplus, they have only partially recovered. Concentrated stock ownership means that a small number of holders control most of the available warrant-tonnage, creating conditions favorable for periodic squeezes.
On the supply side, global mine output jumped 6.5 percent year-on-year in the first ten months of 2025, according to ILZSG data. Chinese zinc concentrate imports hit a record 5.33 million mt, signaling strong concentrate recovery. New and ramping capacity includes Nexa's Aripuana mine in Brazil and projects like Tala Hamza in Algeria and a new zinc circuit at Asmara in Eritrea. Refined output is forecast to rise 2.4 percent in 2026 to 14.13 million mt.
Treatment charges remain the critical bottleneck. The annual benchmark settlement between Teck Resources and Korea Zinc came in at $85/dmt, up slightly from the 2025 all-time low of $80/dmt but still historically low. Chinese spot TCs are even more extreme: the China Zinc Smelter Purchase Team cut Q2 2026 guidance to $35-70/dmt, and Fastmarkets reports deals as low as $10-50/dmt, with negative TCs for high-quality Antamina units. Low TCs force smelters to rely on by-product revenues — particularly silver and sulphuric acid — for margin. This creates a fragile equilibrium where any disruption to by-product markets could trigger smelter production cuts.
Global refined zinc demand is expected to increase approximately 1 percent in 2026 to 13.86 million mt, ILZSG estimates. Chinese demand is seen as flat due to persistent property sector weakness. US and European demand is constrained by soft housing and manufacturing, though galvanizing demand — zinc's primary use case — is supported by infrastructure spending, electrification, and data center investment. The galvanized steel sector accounts for roughly 60 percent of global zinc consumption, making construction and infrastructure the critical demand drivers.
Price forecasts for H2 2026 cluster in a $3,200-3,800/mt range. The World Bank sees LME zinc averaging $2,838/mt in 2026, a forecast that has been overtaken by events. Fastmarkets expects upward momentum to continue into H1 2026 before softening as surplus material arrives. The ILZSG surplus projection is the most significant bearish signal — if it materializes, prices could retreat to $3,000-3,200/mt. But the track record of statistical surplus becoming physical oversupply has been poor in this cycle.
Bear case: The ILZSG surplus materializes as visible stocks rebuild, backwardation collapses, and prices retreat to $3,000/mt. A global manufacturing recession would accelerate this. Bull case: Smelter cuts from low TCs remove refined production faster than mines can increase concentrate output. In this scenario, LME prices test $4,000/mt, and backwardation deepens. Base case: The surplus is real but slow to materialize. Prices trade in a $3,200-3,600/mt range through Q4 2026, with backwardation persisting through year-end.
The zinc market is exhibiting one of the most persistent disconnects between paper balances and physical reality in recent memory. The ILZSG projects a 271,000 mt surplus for 2026, but LME stocks are effectively at operational minimums and the curve remains in backwardation. For procurement teams, this means two things. First, the paper surplus may never materialize as physical metal if inventory remains tied up in concentrated ownership — the low-stock, backwardated environment is vulnerable to squeezes. Second, treatment charges at $85/dmt (annual benchmark) and $10-50/dmt (spot, China) mean smelters are barely profitable on zinc alone, relying on by-product credits from silver and sulfuric acid. Any disruption to those by-product markets — a silver price correction or a sulfuric acid logistics breakdown — could force smelter cuts, flipping the market from surplus to deficit within weeks. Buyers should secure H1 2027 tonnage now, while backwardation still makes nearby buying more expensive than forward. The risk of waiting for the surplus to arrive is that it arrives in a different form than expected — higher prices through a squeeze rather than lower prices through ample supply.