Zinc prices are supported by tight ore supply and low LME stocks, but weak demand from the property and auto sectors, together with multi-year high traders' inventories in China, has capped the upside. In this case, zinc prices are expected to trade in the Yuan 24,000-25,200/tonne range through the second quarter, with a bias to the upside.
Extreme tightness in concentrates leads to lower TC
The zinc concentrate market has remained critically tight, with treatment charges (TCs) at extreme lows. Specially, TCs for imported concentrate have already fallen into negative territory.
Domestic TCs have dived since entering Q2. In early April, the mainstream domestic TC hovered around 1,500 RMB/tonne; however, by early June, averages plunged to 400 RMB/tonne in the north and just 100 RMB/tonne in the south. TCs for imported concentrated followed a similar trajectory, dropping sharply from near breakeven levels. Following the closure of the import arbitrage window and escalating overseas disruptions, the imported TC index has accelerated its decline, reaching US -$50/tonne as of early June.
Source: Mysteel
Reasons behind supply disruptions
This extreme price action was largely catalyzed by frequent overseas supply shocks. Peru, the world's second-largest zinc concentrate producer and source of 20% of China's imports, declared an Energy Emergency on May 11, 2026. Triggered by a gas pipeline explosion in Cusco and compounded by the debt crisis at state-owned Petroperú, the government has prioritized residential needs by imposing power and gas rationing on industrial users like mining. This threatens production and logistics at major mines such as Antamina and Cerro Lindo, severely exacerbating global concentrate scarcity.
Additionally, Kazakhstan's largest producer, Kazzinc, suffered an explosion and fire at its Ust-Kamenogorsk metallurgical plant on May 5 while cleaning dust removal equipment. The subsequent reduction in operating rates further tightens the overseas refined zinc supply landscape.
A negative feedback loop has formed between concentrate shortages and low TCs. Raw material shortages directly limit smelting capacity, while rock-bottom TCs severely compress domestic refinery margins, further suppressing production willingness. Compounding this, Q2 is traditionally the peak season for seasonal maintenance. Concentrated overhauls in Shaanxi, Yunnan, and Hunan point to a clear marginal contraction in refined zinc output for June. LME zinc inventories stand at approximately 110,000 tons, historically low levels, providing robust support for prices.
Weak demand caps upside potential
Demand remains relatively sluggish, limiting the upside momentum. The consumption continues to weaken, with galvanizing operating rates declining steadily. The two core end-use sectors, real estate and automotive, have yet to show clear signs of recovery.
Consequently, domestic traders' inventories of zinc ingots have remained at approximately 265,000 tonnes, maintaining a multi-year high that suppresses the magnitude of any rally. However, this demand-side softness is only expected to restrain the pace of gains rather than reverse the fundamentally supported, stronger bias.
Written by Regina WANG
wangjiaqie@mysteel.com
In summary, while tight concentrate supply and low LME stocks provide a solid floor for zinc prices, persistently weak downstream demand and high domestic inventories will continue to cap the upside. The market is therefore likely to remain range-bound through the second quarter, with prices fluctuating within the Yuan 24,000-25,200/tonne range. A sustained breakout will depend on whether demand from the property and automotive sectors shows tangible signs of recovery. Until then, the tug-of-war between supply-side support and demand-side weakness will define the near-term price action.
