Andy Home: Depleted LME Zinc Stocks may Need a Chinese Booster
The market for zinc has only just realized that the London Metal Exchange's inventory is so low it could cover less than one day of global consumption.
The LME spreads have become volatile, and the cash premium on the three-month price has increased.
All signs point to a market in severe supply deficit. The International Lead and Zinc Study Group, however, estimates that there was a global surplus in the first seven month of this year of 72,000 tonnes.
The bad news is that it appears the excess metal on the LME market is in China. The good news is a wider arbitrage window between the Shanghai and LME markets may facilitate global rebalancing.
ZINC DISAPPEARING
Since the start of the year, LME zinc stocks have fallen from 230,000 to 40850 tons. The available tonnage is just 30,625 tonnes, excluding the metal that's awaiting physical loading. This is a mere drop in a global ocean of 13.5 million tons.
The LME's off-warrant cabinet is also bare, with 12,087 tonnes of deliverable material scattered throughout the warehouse network.
Zinc is no stranger in the market to stock churning, but it appears that much of what was taken out of LME storage has left the system.
Since the fourth quarter 2024, the exports of zinc have increased from Singapore. This country has been holding the majority of the LME stock for the past couple of years.
Exports have reached 240,000 tons for the year. Metal has been sent to many Asian countries, but August's tally included 20,000 tonnes heading to the United States.
Singapore's imports have also dropped to minimal levels. This suggests that there is not much left in storage off-market, which could be delivered on LME positions.
BOTTLENECK SMELTER
LME stocks have been depleted to fill in gaps created by the Western supply chain due to a series of smelter issues.
According to the International Lead and Zinc Study Group, although global mined-zinc production rose 6.3% on an annual basis in the first half 2025, the refined production dropped by 2.1%.
The group blamed the decline on lower smelter production in Brazil, Kazakhstan, and Japan.
Production has also been curtailed at the Seokpo Smelter in South Korea, Nyrstar’s Hobart Plant in Australia, and Glencore’s Italian operations.
Chinese smelters have ramped up production, meanwhile, since the second quarter, as treatment costs increased due to improved raw material availability.
Imports of zinc concentrates have risen by 43% in the last year, and are set to surpass all previous records.
According to Shanghai Metal Market, treatment charges for imported materials turned negative at the end of last season but are now $87.50 per tonne.
According to SMM, improved profitability led China's refined production output to increase by 7% on an annual basis through August.
A MARKET WITH AN UNBALANCED MARKET
Zinc market contrasts between China and other countries are stark.
Shanghai Futures Exchange stocks are steadily increasing, while LME inventories have been shrinking. Deliverable stocks have increased by 70,300 tonnes since the beginning of the year, and are now at their highest level in August 2024.
Shanghai and London are experiencing a growing price gap.
Shanghai currently trades at a discount of more than $330 per tonne to the LME. This is the largest gap since 2022-2023 when China became a net exporter for refined zinc.
BNP Paribas analysts argue that exports will be profitable if the arbitrage window is opened a little more. However, the direction of travel has been set and the bank anticipates "a growing incentive to export over the next two or three months".
The LME will not care from where they get the extra units, but at the moment it appears that it will be the Chinese producers.
These are the opinions of the columnist, an author for.
(source: Reuters)
