Theme of the Day: What’s driving zinc prices?

LME three-month zinc hit a new four-year high of $3,990/t on Monday. LME stocks have remained low all year. Registered inventory stands at ‌100,525t, but almost a third of it is in the form of cancelled warrants awaiting physical load-out. The cash premium over three-month metal flexed out to over $230/t last week. It's eased a little, but at $123/t still signals acute tightness. Zinc is facing another year of mine underperformance and record-low smelter treatment terms. Unlike copper, zinc does not have a substantial secondary, or scrap, supply. Mine output is falling: The world's zinc mines lifted output by 4.8% last year, breaking a three-year streak of falling production. There was a sharp drop in global mine output in H126. The ⁠reality is that output shrank by 2.6% YoY in H126, according to the ILZSG's latest assessment, Big mines, such as Antamina in Peru and Red Dog in Alaska, have seen output drop ​as they work their way through lower-grade parts of their ore-bodies. Others have taken unexpected hits. Both 29Metals' Golden Grove mine in Australia and Boliden's Garpenberg mine in Sweden have had to change mine plans after ​seismic events in Sep 2025 and Mar this year, respectively. Global mine production fell by 8.6% between 2015 and 2025, according to ILZSG data. Smelter output, by contrast, was broadly unchanged over the same period. The mismatch between mine output and smelter capacity is widening again, generating intense smelter competition for concentrates. The result is an implosion in the treatment terms charged by smelters for converting ​concentrates to refined metal. Shanghai Metals Market's (SMM) assessment of spot terms for zinc concentrate imports fell to minus $113/t last month, an all-time low. Smelters are increasingly relying on by-products such as silver and sulphuric ​acid to offset the loss of what should be a core revenue driver. Some will be lucky enough to have secured annual supplies at this year's benchmark terms of $85/t. Refined output up in China, down in RoW: Chinese imports of zinc concentrate surged by 30% YoY in 2025 as smelters used the looser concentrates market to stock up. Imports were up again by 5% in the first seven months of 2026. China's output of refined zinc rose by 5.9% YoY in H126, according to ILZSG. Production in the rest of the ​world contracted by 3.4%. Trafigura's CEO Richard Holtum in a May ​blog about the perilous state ⁠of European smelters, is that "markets alone will not solve this". The current market dynamic of constrained concentrates availability and bombed-out treatment terms will only exacerbate the West's zinc smelting challenge.