Zinc's Bearish Outlook Amid Global Oversupply and Trade Tensions

The zinc market is entering a precarious phase, driven by a confluence of structural imbalances, weakening demand, and geopolitical headwinds. As supply surges from new mines collide with sluggish consumption and trade tensions, investors face a compelling case for caution—or even short positions—in zinc. Here's why the bearish narrative is likely to dominate in 2025.

Rising Chinese Inventories Signal Oversupply

China's zinc inventories have become a barometer of the market's fragility. While the Shanghai Futures Exchange (SHFE) inventories dipped 7.3% month-over-month to 133,412 metric tons by late June 2025, domestic social inventories across seven regions increased by 1,700 metric tons over the same period. This divergence highlights a critical imbalance: while futures prices held up due to cost-of-carry pressures, physical markets face stagnation.

The buildup is concentrated in key regions like Tianjin, where construction delays from seasonal rains and weak demand have slowed off-take. Meanwhile, port inventories of zinc concentrate fell marginally, but domestic stockpiles now total 79,500 metric tons—a 2.2% year-over-year increase. This surplus, combined with falling LME inventories (down to 126,225 metric tons in June), reflects a market where Chinese supply is outpacing domestic absorption, yet global liquidity remains constrained.

Weak Demand in Tire and Rubber Sectors

The structural shift toward new energy vehicles (NEVs) is undermining zinc's traditional demand drivers. Zinc oxide, a key input for tire vulcanization, faces a perfect storm:

• Automotive Decline: China's traditional fuel vehicle production fell 13% YoY in 2024, while NEVs—requiring less galvanized steel and zinc oxide—now command 40% of the market.
• Oversupply in Zinc Oxide: Producers face a 15% oversupply in 2025, as weak tire orders and delayed payments from overseas buyers (especially in the U.S.) suppress demand.
• Inventory Glut: Tire manufacturers are sitting on elevated finished goods stocks, forcing just-in-time procurement and further depressing zinc oxide prices.

The result? Zinc oxide prices have dropped 8% year-to-date, with little relief in sight.

Trade Tensions Amplify the Bearish Narrative

Geopolitical risks, particularly U.S.-China trade disputes, are exacerbating market fragility. The ongoing semiconductor war and tariffs on Chinese exports have slowed global trade volumes, with zinc shipments to key markets like Europe and Southeast Asia contracting by 5% YoY in Q2 2025.

Meanwhile, the Israel-Iran ceasefire has reduced regional risk premiums, diverting capital away from safe-haven commodities like zinc. This “risk-on” sentiment, combined with supply-side uncertainties (e.g., labor strikes at Peruvian smelters), has created a volatile pricing environment.

The Kipushi Supply Surge: A Bearish Catalyst

The most significant near-term overhang comes from Ivanhoe Mines' Kipushi zinc mine in the Democratic Republic of Congo. After ramping up to 800,000 tonnes/year capacity in 2024, Kipushi's 2025 production guidance of 180,000–240,000 tonnes will add 36% to its 2024 output. By Q3 2025, a de-bottlenecking program could boost capacity by 20%, pushing annual output toward 250,000 tonnes by 2026.

This new supply will flood an already oversupplied market. Analysts warn that Kipushi's output alone could depress SHFE prices by 10–15% in H2 2025, especially if China's domestic demand fails to rebound.

Investment Implications: Caution Is Advisable

The bearish case for zinc is compelling:
1. Short Position: Consider shorting SHFE or LME zinc contracts, targeting a 15–20% price decline by year-end.
2. Avoid Long Exposure: Zinc stocks like Nyrstar or Teck Resources may underperform as oversupply pressures mount.
3. Hedge with ETFs: Investors with zinc-linked ETFs (e.g., DBB) should reduce exposure or pair with inverse positions.

Conclusion: Zinc's Downturn Is Likely to Deepen

The structural imbalances in zinc—rising inventories, weak demand, trade headwinds, and a looming supply surge—paint a bleak picture. While China's infrastructure policies and seasonal demand recovery (post-September) may provide temporary relief, the fundamental drivers point to a prolonged downturn. Investors should treat zinc as a “sell the rally” opportunity until these imbalances correct.

Stay cautious.

This analysis is based on data as of June 19, 2025.