LONDON, Aug 13 (Reuters) – London Metal Exchange (LME) zinc stocks have been falling for the last seven months. What’s left would cover barely one day’s worth of global consumption of the galvanizing metal.
But if this is a genuine squeeze on availability, no one’s told the zinc market.
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Zinc has underperformed the rest of the LME base metals pack all year and is still, uniquely, trading below its year-start price to the tune of 4%.
True, time-spreads have been tightening, but they remain in small contango, suggesting the near depletion of available inventory is not being taken as a true reflector of the physical world beyond the LME.
It wouldn’t be the first time LME zinc stocks have flattered to deceive the unwary. Moreover, there’s a cast-iron analyst consensus that this is a market moving inexorably into significant supply surplus, so it’s just a matter of time before exchange inventory recovers.
Short-position holders, however, can only hope that some of that surplus shows up in exchange warehouses sooner rather than later.
UNRELIABLE SIGNAL
LME-registered zinc inventory has fallen to a two-year low of 78,475 metric tons, with available stocks even lower at 45,700 tons.
What remains is almost all located in Singapore, an exchange delivery point that has been the focal point for both zinc and lead arrivals since late 2023.
The metal has subsequently churned in and out of the system as traders played the LME warehouse arbitrage game. Zinc stocks in Singapore ended 2024 up by a modest net 35,550 tons on the year, but 691,500 tons were actually delivered in and out of LME sheds in the port.
Optics swung from bullish to bearish depending on the stock rotation cycle, diminishing the utility of LME warehouse inventory as a market signal.
SUPPLY-CHAIN GAPS
The last significant Singapore stocks churn was in April, when almost 90,000 tons of zinc were warranted in the space of two days.
But movement since then has been largely one-way and inventory has slumped by 144,250 tons since the start of January.
Nor has there been any offsetting rise in off-warrant inventory held in LME-registered warehouses as was the case last year, when metal was moving between warehouse operators.
LME off-warrant stocks total just 16,472 tons, of which 4,842 tons are stored in Singapore.
There has been a noticeable pick-up in Singapore’s zinc exports in the first half of this year, with outbound volumes of 153,000 tons already matching last year’s full 12-month tally. There are no zinc smelters on the island, meaning this is LME metal on the move.
Inbound shipments, meanwhile, have slowed to just 27,000 tons from 82,000 tons in the second half of 2024.
Singapore’s exports have flowed to a wide variety of Asian countries, suggesting LME stocks have been drawn down to fill supply-chain gaps left by smelter disruptions.
CHINA RAMPS UP
While Western smelters are struggling, Chinese producers are ramping up aggressively as supplies of mined concentrate improve.
China’s refined zinc output rose by 4% on a year-over-year basis in the January-July period, according to local data provider Shanghai Metal Market, which forecasts the year-to-date rate will accelerate to 7% in August.
Treatment charges for imported raw material have recovered from negative territory at the end of 2024 to $82.00 per ton as a recovery in global mine production travels down the processing chain.
China’s imports of zinc concentrates jumped by 48% on a year-over-year basis in the January-June period thanks to accelerated flows from Democratic Republic of Congo and Russia, where the new Kipushi and Ozernoye mines are ramping up, respectively.
So far, however, the extra zinc has remained in China. Exports of refined metal amounted to just 12,700 tons in the first half of 2025.
BETTING ON SURPLUS
The London zinc market has been remarkably unconcerned by the depletion of exchange stocks.
The LME benchmark cash-to-three-months spread has tightened from a contango of more than $30 per ton at the start of June to $5 as stocks have steadily fallen. But by way of comparison, the last time LME inventory was this low, the spread traded in consistent backwardation.
Exchange lending guidance may be playing a part in the relaxed spreads with LME reports showing two significant long positions on the cash date equivalent to at least 90% of currently available stocks.
But the wide divergence between spread and stock signals suggests there is no real panic because no one thinks the physical supply chain is that tight.
Zinc demand is doing no more than flat-lining due to weak construction activity just about everywhere and the global market registered nearly a 90,000-ton supply surplus in the January-May period, according to the International Lead and Zinc Study Group.
The question, however, is how much of that calculated surplus is actually available for LME delivery. And, perhaps more critically given the tension in the London zinc market, how quickly can it get to a LME delivery point?
(The opinions expressed here are those of the author, a columnist for Reuters.)
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