Wealthion Macro Bites – Zinc’s Surprise Deficit: How a Forecast Glut Became a 4-Year Price High

On 8/26, LME 3-mos. zinc futures touched a 4-year high of $3,949/t (+43% y/y).  Contrary to early-’26 forecasts of market oversupply, a shortage of physical metal has driven the global zinc market into an unexpected deficit.  Operational issues, lower ore grades and strict environmental regulations have caused major zinc miners such as Glencore and Teck to systematically revise production guidance lower.  Additionally, zinc smelters are facing an acute raw material crunch, as treatment charges (TC’s) have plummeted to historic negatives (meaning smelters are paying a premium to secure zinc concentrate).  This has crushed smelting margins and forced production cutbacks.

On the supply side, new government critical mineral policies (such as long-term off-take agreements) are aggressively removing physical zinc from spot markets.  Further, physical stockpiles on major exchanges such as LME have plummeted.  This lack of a physical buffer leaves the market vulnerable to price spikes which have thrown LME zinc prices into backwardation (cash prices over $4,100 vs. 3-mos forwards of $3,930).

Fitch commented, “As Jackson Hole beckons, the Fed’s challenge is clear.  It still has considerable ground to cover before markets see 2% inflation as a credible outcome rather than a distant aspiration.” July PCE was +3.7% y/y (vs. +3.6% est.) and +0.2% m/m (vs. +0.2% est.).  Fed funds futures priced in a 44% probability of a Sept. rate hike (up from 36% before the data).  Kansas City Fed President Jeff Schmid said, “I'm a very strong believer that if we're going to have a scorecard for the Fed, it's got 2% inflation, it's got stable prices on it.  We're not there."