JP Morgan forecasts higher zinc prices through 2026 on supply cuts

JP Morgan expects zinc prices to stay elevated through the rest of 2026, forecasting LME zinc at $3,400-$3,500 per metric ton despite weak demand. The bank cut its 2026 global refined zinc production forecast by nearly 300,000 metric tons, citing a 5% year-on-year decline in mine supply growth from disruptions and producer misses in Sweden, the U.S. and Peru. The global zinc market is still expected to post only a modest surplus of about 130,000 tons.

Analysis

Zinc is setting up as a classic “bad macro, good micro” trade: weak end-demand does not matter much if incremental supply keeps disappearing faster than demand can normalize. The bigger second-order implication is that the market is moving from a demand-led pricing model to a reliability premium, where maintenance discipline, power stability, permitting, and logistics matter more than headline consumption growth. That tends to favor the lowest-cost, best-capitalized producers and penalize any high-cost smelters that were relying on a softer input-cost regime to preserve spreads.

The supply shock is also likely to ripple through industrial metals complexes. If zinc stays bid while broader growth data remains soft, it can tighten galvanizing costs for construction, auto, and infrastructure supply chains without necessarily creating a broad inflation pulse; that combination is usually more margin-negative for downstream manufacturers than for miners. In equities, the setup is asymmetric: miners with clean balance sheets can hold pricing power for quarters, while refiners and fabricators face a delayed squeeze as inventory rolls down and replacement costs reset higher.

The consensus risk is that the market may be underestimating how quickly any price spike invites substitution, inventory liquidation, and hedging supply back into the curve. Zinc is particularly vulnerable to a “fast rally, slow demand response” pattern over the next 1-3 months, but if prices remain elevated into mid-2026 the real catalyst becomes secondary supply: dormant capacity restarts, scrap flows, and more aggressive producer hedging. That argues for being tactical rather than structural until we see whether the deficit path persists through the next several quarterly production updates.

Key Decisions for Investors

• Long LME zinc exposure on pullbacks via futures or ETFs for a 1-3 month tactical trade; use a stop below the recent support zone and target a re-test of the $3,700-$3,800/ton area if supply headlines persist.
• Pair trade: long diversified miners with zinc leverage and strong balance sheets vs short downstream metal fabricators/galvanizers for 3-6 months; the cleaner balance sheets should capture pricing upside while downstream margins compress as replacement costs reset.
• Add call spreads on zinc-linked producers with high operating leverage for the next earnings cycle; the best risk/reward is where consensus still assumes flat pricing and forward curves lag spot.
• Avoid chasing the move unhedged if zinc is already near the upper end of the bank’s expected range; the trade is vulnerable to inventory drawdowns and producer hedging once market participants believe the shortage is “known.”
• If you need a hedge against a broader industrial slowdown, use zinc strength as a funding source: short cyclical industrial names with high metal input sensitivity, since elevated zinc can quietly erode margins even without a full demand collapse.