Zinc futures fell 0.4% to $3,876 per ton after touching its highest level since June 2022, marking a significant pullback from recent highs. According to latest reports, the benchmark three-month zinc contract on the London Metal Exchange had reached $3,949.5 on Wednesday, but the rally hit a speed bump as fresh deliveries into LME warehouses lifted inventories to a three-week high. The immediate catalyst was the daily warehouse update showing LME stocks rose to 97,875 tons after 1,100 tons flowed into approved warehouses in Singapore and Hong Kong, a sign more metal is turning up on-exchange. The decline came as a firm dollar weighed down the support of thin supply outside China, with the U.S. Dollar Index gaining 0.33% during this week.
The zinc market continues to display clear signs of supply constraints, with spot metal trading almost $200 per ton above three-month futures, representing the widest spread since December. As reported by Bloomberg, this spread remained above $190 per ton on Thursday, indicating tight physical availability. The LME cash contract traded $232 a ton above the three-month contract, the widest cash premium since December, which usually signals buyers are willing to pay up for prompt supply. A closely watched spread that represents the cost of rolling expiring spot positions by a day also spiked on Thursday, with the Tom-next spread climbing to about $13 per ton, the highest backwardation since March. However, recent developments show the market is beginning to respond to improved supply conditions, with analysts noting that while there remains physical tightness in China, it isn't as severe as previous periods and doesn't justify current price levels.
The latest LME data revealed that zinc stocks reached a three-week high after 1,100 tonnes of new inflows into registered warehouses in Singapore and Hong Kong. According to industry reports, analysts anticipate more inventory additions, mainly in China, due to the increase in the premium of the LME Cash Zinc contract over the benchmark. The global market for refined zinc was in surplus of 120,000 tons in the first half 2026, with reported inventories rising by 92,000 tonnes. This surge in available supply has helped ease the tightness that had been driving prices higher, though the LME maintains a large cash-to-3-month backwardation due to ongoing concerns about metal availability. Analyst firm Wood Mackenzie expects limited new supply to rebuild exchange stockpiles in the next few months, and estimates this year's global zinc deficit at close to 200,000 tons after cuts to smelter output, especially in China.
Treatment charges, the fees miners pay smelters to process ore into metal, have fallen to as low as minus $110 per ton, according to Fastmarkets. According to Guangzhou Future Co. as reported by Bloomberg, "available physical liquidity is at extremely thin levels" on the LME. While smelters can offset some losses by selling by-products, prolonged negative fees increase the risk of production cuts and worsening supply shortages. The current market dynamics show that while physical tightness persists in China, it doesn't justify the current price levels, with analysts suggesting the market is overreacting to supply concerns. The $232-a-ton gap represents a form of backwardation where near-term zinc costs more than zinc for later delivery, effectively rationing available spot metal through the spread.
