Global zinc supply shortage and price surge

Zinc prices on the London Metal Exchange (LME) have surged to a four-year high, driven by a significant shortage of metal ore and tightening global supply. The market has experienced intense backwardation as buyers rush to secure physical metal.

This supply crunch is characterized by falling treatment charges, which dropped to as low as negative $117.50 per ton in August. This indicates that miners are effectively paying smelters to process ore, a situation that weakens smelters' bargaining power and threatens industrial margins. The International Lead and Zinc Study Group (ILZSG) revised its 2026 outlook from a projected surplus to a deficit of 19,000 tons.

Contributing factors to the scarcity include mining disruptions in China and conflicts in the Middle East restricting ore supply from Iran. While LME zinc stocks remain below 100,000 tons, there is growing expectation that China may increase refined zinc exports to alleviate the shortage. Zinc futures have risen 27 percent since the start of the year, outperforming other base metals such as copper and aluminum.