Zinc expected to retreat in 2026 as weak demand offsets supply fears

Zinc prices are expected to retreat from recent highs over the rest of the year as lacklustre demand offsets supply disruptions, analysts say.

The metal used to galvanise steel is up more than 13% on the London Metal Exchange in 2026 due to tight ore supply and smelter production losses. Outperforming copper, aluminium, lead and nickel, zinc last month climbed to its highest in almost four years at $3 658 per metric ton.

Tighter-than-expected supply has prompted analysts to revise up their 2026 price forecasts, but while they see zinc remaining elevated in the second half of the year, they don’t expect it to hold on to current levels above $3,500.

“We’re going into the quieter second half for steel,” said Panmure Liberum analyst Tom Price, noting that China‘s steel production rate in 2026 has underperformed its rolling five to six-year average.

“If the production for steel falls, that is a primordial demand driver for zinc,” said Price, who sees the metal slipping to $3 100 a ton in the fourth quarter.

BMI, a unit of Fitch Solutions, forecasts zinc will fall further to $3,000 by then, as long positioning sparked by an explosion at Kazzinc‘s smelter and a fire at Nexa Resources‘ Cajamarquilla plant in May runs up against the reality of slack demand.

“Prices are likely to ease from current levels as the headline-driven risk premium attached to recent supply disruptions fades and the market moves into a narrow surplus,” BMI said in a note.

It sees a surplus of 34 000 tons this year in a market estimated at around 14-million tons.

Wood Mackenzie‘s research director for zinc markets, Jonathan Leng, expects prices to dip to around $3 350 by end-2026, with global demand growth at a weak 0.9%. But he still projects an 80 000-ton deficit and warns LME zinc stocks of just over 100 000 tons are only a thin buffer.

“If there’s any more disruption to smelting production, we could see another spike higher,” Leng said.

The recent opening of the arbitrage window to ship zinc from the Shanghai Futures Exchange to LME warehouses could drag LME prices lower, Leng said.

Copper surged to its highest in more than a month on Tuesday as evidence of a tightening physical market in China piled up and traders rebuilt bets that Washington will impose a tariff on refined metal.

Comex copper for September delivery jumped 3.3% to $6.55 a pound ($14,440 a tonne) by early afternoon in New York, less than 2% from the record set in early June. Three-month copper on the LME rose 1.7% to $13,851 a tonne, its best level since June 15, leaving New York metal at a premium of nearly $600 a tonne, more than double Monday’s gap and a sign the market is again pricing in a duty on US imports of refined copper, a decision that now sits with the White House.

The pull is coming from China, where two separate tightness gauges are flashing at once. Inside the country, the premium for spot cathode over Shanghai futures, a measure of how hard prompt metal is to find in the domestic market, jumped to 435 yuan ($61) a tonne, up from zero a week ago and the highest since May last year.

At the border, the Yangshan premium importers pay to bring copper into China climbed to $103 a tonne on Monday, also the highest since May 2025 and up from a $20 low in January, according to Shanghai Metals Market data.

Deliverable copper stocks in warehouses monitored by the Shanghai Futures Exchange have collapsed 82% since early May, while LME inventories are down 28% over the same stretch, and more metal is on its way out: of the 296,625 tonnes in the LME system on Tuesday, 166,025 tonnes, or 56%, sat on cancelled warrants awaiting delivery out, according to exchange data. The LME’s cash-to-three-month spread has narrowed close to backwardation, a sign of tightening near-term availability.

“Copper is being pulled higher by a tightening Chinese market,” ING commodities strategist Ewa Manthey said in a note, adding that the rally will need continued evidence of physical tightness to extend much further.

The squeeze extends into the smelting network. Satellite monitoring by Earth-i’s SAVANT index registered 16% of global copper smelter capacity as inactive in the second quarter, with Chile the standout laggard: inactivity there hit 25.4%, the highest reading since 2019, corroborating a 12.9% year-on-year drop in the country’s copper output in May.

Record-low treatment charges are claiming permanent casualties, with Japan’s 354,000 tonne-a-year Onahama smelter, which showed no operating signals in June, set to stop processing concentrates by early 2027.

Waiting on Washington

The tariff question has kept a floor under the New York premium. The Commerce Department’s update on the US copper market fell due at the end of June, leaving the president to decide whether a phased duty on refined copper, 15% from January 2027 rising to 30% in 2028, goes ahead. Comex warehouses hold a record 630,000-plus tonnes after eight straight quarters of builds, a hoard assembled largely on tariff expectations.

Geopolitics cut both ways on Tuesday. Reports that mediators have proposed a 10-day US-Iran ceasefire cooled oil more than 1% in early trade, supporting risk appetite across industrial metals, with aluminium, zinc, nickel and tin all higher.

Yemen’s Houthis, meanwhile, said they would impose a naval blockade on Saudi Arabia, and a tanker in the Strait of Hormuz was struck by an unknown projectile, keeping alive the sulphur supply threat the IEA warned last week could curtail leached copper production.

Copper equities amplified the move. Southern Copper jumped 6.5% and Freeport-McMoRan 6.3% by early afternoon in New York, with Freeport’s gain for the year now at 23%, two days before the top US-listed producer reports second-quarter results. The rally swept the rest of the majors, with Teck Resources up 3.7%, BHP 3.6%, Glencore 3% and Rio Tinto 2%, while Lundin Mining added 6.7% and First Quantum 5.9%.

Copper is now up about 16% in New York this year and 10% in London.