Is Zinc Outperformance Justified?

Share This Post
Twitter icon FacbeookIcon
Banner Img

By Richard Fowler, SSY Derivatives Analyst


Zinc has outperformed base metal peers so far this year and we look through the most recent data to ascertain whether the pace of price gains can continue.

China has been a key driver for metals this year and Chinese zinc demand has recovered well from having been pressured by virus-related restrictions and lockdowns. This recovery has been the result of a boost to infrastructure and construction sectors, which represent some two-thirds of Chinese zinc demand, from increased credit availability.

Recent credit numbers, as well as infrastructure new orders and equipment sales, such as the excavator data above, haven't yet showed signs of slowing materially on a seasonally-adjusted basis. Nor have auto sales, which represent another source of end-use demand and have been growing consistently YoY since May in China.



A swifter recovery in China relative to ex-China hasn't been reflected in high-grade imports, but has been seen in zinc ore imports, which are up over 30% YTD as of September. Treatment charges paid to smelters (for both imported and domestic ore) have however declined from high levels at the start of the year, with the most recent leg lower from around mid-September. Though there were supply disruptions at San Cristobal in Boliva and Alpayana in Peru, both have now resumed operations.



Lower TCs are likely at least in part driven by increasing smelter capacity therefore and whilst high-grade output is certainly increasing, YTD estimations are around 4.5% to October, suggesting ore stocks have likely built over the course of this year in China.

The ILZSG has ore production globally down 7.7% as of August, meaning China has increased apparent ore consumption notably at the same time as ore consumption overall has declined considerably. The reduction in the share of ore tonnage ex-China would be considered positive for LME market tightness were it not for the continued impact on construction demand ex-China.

The extent to which demand remains sluggish is evidenced from equipment manufacturers to construction PMIs to ex-China auto sales, which have only recently recovered to around last year's levels.



The ILZSG also have zinc production ex-China returning to last year's levels as of July however, implying supply of high-grade should have been more than sufficient recently.

China social stocks remain in and around levels seen in recent years, drawing excess stock built in 1H. LME stocks have however risen sharply, though remain relatively low in comparison with historical levels. Stocks have also increased from the LME's off-warrant reports, particularly in the US, and whilst total off-warrant material isn't published, there's no implication of material tightness ex-China from available data.


From a fundamental perspective therefore, LME prices appear to reflect an expectation of demand recovery beyond that which has already occurred.

Though convenient to lean on macroeconomic drivers and trends as the rationale for zinc's recovery, it makes the explanation of zinc's outperformance against peers at this stage of the recovery difficult to justify.


For more information please contact the Metals team on +44 207 265 1871  or email 


While every care has been taken to ensure that the information in this publication is accurate, SSY can accept no responsibility for any errors or omissions or any consequences arising therefrom. Figures are based on the latest available information, which is subject to subsequent revision and correction. The views expressed are those of SSY Futures Ltd and do not necessarily reflect the views of any other associated company. Reproducing any material from this report without permission from SSY is strictly prohibited. Please click here to view our terms and conditions in section 6.2.


Related Posts


US-Iran nuclear deal a headwind for the VLCC market?


The impact of port congestion


Chinese Grain Trade Gains

SSY Premier Club

Simpson Spence Young’s Premier Club offers membership subscriptions that are designed to provide shipping professionals with direct access to a wide range of reports, publications and data. This includes timely, interpretive analysis of the shipping and commodity markets.

Our online portal makes it easy to find information when you need it. Simply sign up for one of our subscription packages to keep up to date with the latest trends, specialist reports and benefit from our analyst support for Gold level members.