According to China Energy Network, Shanghai zinc prices have maintained a wide range consolidation in the second half of this year, driven by macroeconomic factors and market sentiment. Recently, with tightening raw material supply, the downside support for Shanghai zinc prices has further strengthened.

On the demand side, since the fourth quarter of last year, overseas mines have resumed production, continuously flooding the Chinese domestic market with imported resources. This has largely fulfilled expectations of ample domestic mine supply. Chinese smelters currently hold monthly raw material inventories sufficient for about 28 days. Processing fees have steadily rebounded, and smelter profits have continuously recovered. Considering by-product revenues, profits are approximately 2,000 yuan per ton. Smelters are highly motivated to produce, with monthly output rising from around 500,000 tons to over 600,000 tons. The rising refinery operating rates have sustained increased raw material demand. In mid-September, some domestic refineries initiated winter stockpiling ahead of schedule, further boosting demand. Concurrently, the strong upward trend in LME zinc prices has driven profit recovery and operating rate increases at overseas refineries, also contributing to higher demand.

On the supply side, the Shanghai-LME zinc ratio remained persistently low, prompting refiners to favor domestically sourced ore for its cost-effectiveness. Imported ore deliveries were primarily fulfilled through long-term contracts, with limited spot transactions. Entering the fourth quarter, cooling temperatures in northern China will trigger seasonal maintenance at some mines, potentially reducing ore supply. This tight supply dynamic is expected to persist into the first quarter of next year.

Amid tightening mine-side supply and demand, processing fees for domestic zinc concentrates in China began declining in early September. As of November 7, domestic zinc concentrate processing fees stood at 2,650 yuan per metal ton, down 32.05% from September's peak. Imported zinc concentrate processing fees also retreated from their highs in mid-October. As of November 7, the fee stood at $98.37 per dry ton, down 17.16% from October's peak.

The latest announcement from China's Zinc Raw Material Joint Negotiation Group indicates that the guidance price range for imported zinc concentrate processing fees will be $105–120 per dry ton until the end of Q1 2026. As processing fees retreated, profits along the industrial chain shifted once again from smelters to miners.

As of November 13, production profits for China's zinc concentrate producers reached CNY 5,398 per metal ton, a 52.06% increase compared to September. Conversely, production profits for refined zinc producers stood at -CNY 1,338 per ton, a decline of CNY 1,172 per ton compared to September.

Inventory-wise, domestic Chinese stocks continue to accumulate. Driven by ample raw materials and favorable production margins, domestic smelters maintain high production enthusiasm, with monthly output exceeding 600,000 tons. From January to October, China's refined zinc output reached 5.6863 million tons, marking a 10.09% year-on-year increase. Domestic downstream enterprises primarily purchased zinc ingots at low points and for essential needs, showing low acceptance of high-priced zinc. Strong supply and weak demand led to continued inventory accumulation. Overseas, some smelters reduced annual output due to losses. Global refined zinc production from January to August reached 9.1482 million tons, essentially unchanged from the same period last year.

Notably, LME zinc inventories have been declining since mid-to-late April. As of November 12, inventories stood at 37,800 metric tons, down 80.65% from April's peak and 84.79% year-on-year. As inventories continued to fall, the spread between near and far-month LME zinc contracts began to narrow. By late August, LME zinc shifted to a backwardation structure, deepening into a steep backwardation by mid-October. Near-month contract premiums surged to historic highs, placing sustained pressure on market liquidity. In late October, the London Metal Exchange (LME) announced plans to establish permanent rules imposing restrictions on members holding large positions in near-month contracts when inventory levels are low. This move signaled the LME's transition to a routine phase in its systemic response to “near-month liquidity risk.” Although the LME zinc near-month/far-month spread subsequently narrowed, it remained at an absolute high level, indicating that structural market risks have not been fully eliminated.

In the medium to long term, overseas structural risks remain unresolved. Expectations of reduced production at smelters due to tight raw material supplies, coupled with China's domestic zinc ingot exports, provide strong support for zinc prices.

As an integrated internet platform providing benchmark prices, on November 21, the benchmark price of zinc from SunSirs was 22,408.00 RMB/ton, an increase of 0.64% compared with the beginning of the month (22,266.00 RMB/ton).

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