Nexa’s Integrated Model Hedges a Zinc Market on a Knife’s Edge Between Tightness and 2026 Surplus Risk

Nexa's 2025 results delivered a powerful turnaround, moving from a deep loss to a robust profit. The company posted a full-year net income of $223 million, a dramatic shift from the $187 million net loss it posted in 2024. This financial rebound was driven by a strong finish to the year, with the fourth quarter standing out. For that period, Nexa reported earnings per share of $0.60, nearly 20% above expectations, and revenue of $903 million, which topped estimates by 16.5%.

The operational engine behind this profit surge was a massive jump in cash flow. Adjusted EBITDA for the quarter hit $300 million, a 61% quarter-over-quarter increase and a 53% year-over-year jump. This translated to an adjusted EBITDA margin of 33% for Q4, up significantly from 24% in the prior quarter. The company's CEO attributed this performance to a combination of higher realized prices for zinc and key by-products and consistent execution across operations.

This wasn't just a one-quarter pop. The full-year adjusted EBITDA of $772 million represented an 8% increase from 2024, again primarily fueled by stronger zinc and by-product prices. The results underscore a clear market dynamic: higher metal prices, particularly for zinc, directly and powerfully boosted profitability. Yet, the story is more nuanced than price alone. Nexa also highlighted solid operational execution, with its mining division achieving cost performance in line with expectations. The company's ability to ramp up zinc production to a 5-year quarterly record of 91kt in Q4 shows it could capitalize on the favorable pricing environment.

The bottom line is that Nexa's earnings beat is a direct reflection of a favorable zinc market balance in late 2025. Higher prices provided the top-line tailwind, while disciplined operations and production gains amplified the bottom-line impact. This sets the stage for a deeper look at what's driving those prices and whether the current balance between supply and demand can hold.

The Zinc Market Balance: Surplus Risk vs. Price Support

The market for zinc is caught in a clear tension. On one side, prices are supported by tangible supply constraints and rising costs. On the other, fundamental projections point toward a growing surplus. This is the core balance that will determine the sustainability of the recent price rally.

The current price level reflects this conflict. As of March 10, 2026, the LME zinc price stood at $3,363.70 per tonne. This is up significantly from a year ago, but it has pulled back from a three-year high of $3,430 set in late January. The support for this level comes from two key factors. First, higher operating costs for refiners, driven by a surge in power prices from geopolitical tensions, are raising the cost floor for production. Second, supply is being actively curbed. Despite a 5.4% jump in global mined output, refined zinc output outside of China actually fell 1.6% in recent months, consistent with output reductions among smelters in Kazakhstan and Japan. This tightness is amplified by historically low inventories. On February 9, LME zinc stocks were at 106,925 tonnes, a level that can magnify price moves on any supply shock or demand surprise.

Yet the longer-term outlook introduces a significant risk. The market is projected to face a surplus in 2026, with refined zinc output expected to increase by 2.4% to 14.13 million metric tons. This follows a period of flat prices in 2025, where demand from housing and manufacturing sectors struggled under high interest rates and trade uncertainty. The risk is that the current price strength, while supported by tightness and high costs, may not be enough to offset this structural increase in supply. The low inventory buffer means the market is vulnerable to a reversal if the surplus materializes as forecast.

The bottom line is a market balanced on a knife's edge. Price support from tight inventories and high refiner costs is real and immediate. But the fundamental trajectory, driven by expanding refined output, points toward a surplus that could eventually overwhelm these supports. For now, the low stockpile acts as a shock absorber, but it also sets the stage for a more volatile path ahead.

Nexa's Position: Cost, Exposure, and Operational Hedges

Nexa's operational profile is defined by its integrated model and a cost structure that is both a strength and a source of volatility. In 2025, the company produced 316,000 tonnes of zinc at a consolidated C1 cash cost of $0.30 per pound. This figure represents the cost of producing zinc at the mine, net of by-product credits, and provides a clear benchmark for its underlying production efficiency. The company's integrated approach, which includes the largest zinc smelter in the Americas, is a critical hedge. It insulates Nexa from the volatility of treatment and refining charges (TCs), which are fees paid to smelters for processing concentrates. This vertical integration means Nexa can capture more value from its own ore, a strategic advantage in a market where TCs are expected to rise.

Management has flagged Brazilian smelting instabilities and lower 2025 TCs as key drivers of operational and financial volatility. The Brazilian operations have been a persistent source of cost pressure and production uncertainty. However, the outlook for TCs is a positive cost input for 2026. Nexa expects these charges to rise above US$80 per tonne, which would improve the economics of its smelting segment and provide a tailwind to margins. This expectation is a direct reflection of the tightness in the refined zinc market, where smelters are competing for limited concentrate supply.

The company's guidance for 2026 assumes this favorable TC environment, projecting a modest increase in metal sales volumes. Yet, the path forward is not without friction. The guidance itself notes risks from commodity price volatility, inflationary pressures, supply chain constraints, and community or weather events. The recent production gains, including a 5.4% jump in global mined output, highlight the sector's ability to ramp up supply. Nexa's challenge will be to maintain its operational discipline and cost control, particularly at its more volatile sites, to ensure its strong cash cost position translates into sustained profitability as the market navigates its projected 2026 surplus.

Catalysts and Risks: The Path Ahead

The path for Nexa and the zinc market hinges on a few forward-looking factors. The primary catalyst is the trajectory of LME zinc prices. These are sensitive to global industrial demand, particularly from the construction and automotive sectors that use galvanized steel. The recent price rally, which saw the LME zinc price hit $3,363.70 per tonne earlier this week, is supported by tight inventories and high refiner costs. However, the market's outlook is clouded by a projected surplus. The International Lead and Zinc Study Group forecasts a larger overhang in 2026, following a period of flat prices in 2025. If demand growth from housing and manufacturing does not keep pace with this expanding supply, the price support could unravel.

The key risk is this fundamental imbalance. The market is expected to face a surplus in 2026, with refined output projected to increase by 2.4% to 14.13 million metric tons. This structural increase in supply could pressure prices if the current demand from key end markets fails to materialize. The recent pullback from a three-year high shows the market's vulnerability to this dynamic. For Nexa, this means its strong 2025 performance, driven by high prices, may not be sustainable if the surplus materializes as forecast.

Operational execution will directly impact Nexa's ability to navigate this risk. The company's guidance assumes a favorable cost environment, with treatment charges expected to rise above US$80 per tonne in 2026. This would improve margins, but achieving that depends on maintaining stable operations, especially at its more volatile Brazilian smelters. Any further instabilities there could disrupt the cost advantage and undermine the financial outlook. Similarly, the company's ability to maintain its low C1 cash cost of $0.30 per pound will be critical for profitability if metal prices soften.

The bottom line is that Nexa's sustainability is inextricably linked to the broader market balance. The company's integrated model and cost discipline provide a buffer, but they cannot fully insulate it from a sharp shift in the fundamental supply-demand equation. The coming quarters will test whether the current price strength, supported by tightness and high costs, can hold against the looming 2026 surplus. For now, the low inventory buffer means the market remains sensitive to any change in the outlook.