Zinc prices have extended their gains, reaching a four-year high on the London Metal Exchange (LME) amidst concerns over regional supply tightness and significant speculative buying. Benchmark three-month zinc CMZN3 rose by 1.1% to $3,932 per metric ton, the strongest level seen since June 2022. This marks the sixth consecutive session of gains for the metal, which is primarily used to galvanize steel. Analysts attribute the rally to localized shortages, particularly in LME-registered warehouses, even as overall global supply figures indicate a surplus.
The disparity in zinc inventories is a key driver of the price surge. While LME inventories slumped by 31% over two months leading up to August 17 (though they have since rebounded by 13%), stocks in warehouses linked to the Shanghai Futures Exchange have more than doubled this year to 155,954 tons. This regional imbalance has caused the premium of cash LME zinc over the three-month futures CMZN0-3 to soar to $132 a ton, up from zero in early July and reaching its highest point since last December. This suggests a tight immediate supply for the London market, despite ample metal in China.
Speculative buying has amplified the price increases, with zinc gaining 25% this year. Investment funds have accumulated over 110,000 tons of long positions, marking the largest collective bet on higher prices since LME began publishing positioning reports in 2018. Alastair Munro, a senior base metals strategist at Marex, noted that "Until you see the longs drop out of the banding reports I would be cautious about calling a top." He also mentioned that the LME has yet to see meaningful stock inflows. The situation is further complicated by low treatment charges for zinc concentrate, which have fallen to negative $110 a ton, indicating a lack of concentrate for smelters and forcing them to pay for raw material access.
Despite a modest 1.5% year-on-year growth in global usage from January to May, and refined metal output growing faster at 3.5% leading to an estimated global supply surplus of around 145,000 tons, most of this surplus originates from China. Western smelters are struggling with supply hits and margin pressures, contributing to the localized shortages on the LME. While China has started exporting zinc to LME warehouses in Hong Kong, with 17,000 tons warranted so far and an additional 5,000 tons in off-warrant storage, the pace of these arrivals is slower than anticipated by some market participants.
