The zinc market is showing signs of extreme tightness as dwindling inventories and supply disruptions squeeze buyers outside top consumer China.
Prices of the metal, primarily used to galvanise steel, have surged to their highest level in more than four years.
Benchmark zinc on the London Metal Exchange (LME) rose as high as US$3,823 ($5,327) per tonne on Friday, its strongest level since June 2022.
The rally takes zinc’s year-to-date gain to around 22%, outperforming every major LME metal except tin.
Over the past month alone, zinc has risen around 8% as shrinking physical supplies outside China tighten an already constrained global market.
Supply squeeze
The tightness is particularly evident in the premium buyers are paying for immediate supply.
LME cash zinc recently traded at a premium of more than US$132 per tonne to the three-month contract, the widest spread since December.
“Concerns over physical metal shortness have supported zinc’s price, with LME stocks relatively tight,” Macquarie analyst Alice Fox told Reuters, while noting that zinc remains plentiful in China.
Over the past two months, inventories in LME-registered warehouses have fallen 25% to 93,125 tonnes, according to data cited by Reuters.
The picture in China is markedly different.
Inventories in warehouses linked to the Shanghai Futures Exchange have more than doubled this year to 155,954 tonnes.
“There are still concerns about overseas supply disruptions in zinc,” analysts at Chinese brokerage Jinrui Futures said.
“So the driving forces for the relative strength of the LME price continue to exist, together with heightened volatility around macroeconomic sentiment.”
Macquarie’s Fox also warns that the situation could persist.
“There is a risk of a prolonged squeeze with backwardation persisting and roll costs becoming more expensive,” she said.
‘Confounding’ the bears
The rally has also been amplified by traders betting that additional mine supply would come online sooner than it has.
Alastair Munro, senior base metals strategist at broker Marex, says bearish traders have repeatedly been forced to buy back positions as expected supply growth failed to materialise.
“Zinc is still confounding the bears,” Munro said.
“Too many keep trying to pick tops amid the expectation of increased supply, which is then slower to materialise forcing them to stop out.”
HSBC sees tight market
Against this backdrop, HSBC’s Global Commodity Team has warned that the zinc market is flashing signs of extreme tightness.
The bank expects global zinc mine supply to decline 2.1% year-on-year to 12.5 million tonnes in 2026, driven largely by lower production in Latin America.
HSBC also expects the refined zinc market to remain slightly tight this year, with modest demand recovery in Europe and North America coinciding with disruptions across mines and smelters.
With inventories outside China falling and new mine supply taking longer than expected to materialise, the physical squeeze could continue to support zinc prices in the near term.
Write to Jackson Chen at Mining.com.au
Image: Glencore
