Long-term zinc contract negotiations for 2026 in Europe are progressing more slowly than expected, with some market participants reporting that discussions have yet to even begin. The slowdown is driven by steep backwardation on the London Metal Exchange (LME) caused by critically low inventories, which is fuelling near-term uncertainty.
On-warrant stocks of zinc in LME-registered warehouses dropped to 22,850t on 9 October — the lowest since February 2023 — pushing LME prices above $3,000/t. Current warehouse stocks are at 43,750t, marking a drawdown of around 75pc since the start of the year and an 82pc drop year on year.
This persistent inventory depletion flipped the market into pronounced backwardation, causing the cash to three-months spread on the LME to surge to nearly $300/t last month, its steepest in years. The cash to three-months spread most recently traded in a backwardation of around $130/t, with a bid-ask range of $107.5–126.5/t. The sharp price inversion signals a significant near-term shortage, making it difficult for buyers to confidently forecast forward pricing or premiums.
"The current market situation and backwardation is really not sustainable… it's hard to even think about longer-term contracts," a market participant said. Producers are reluctant to lock in forward sales while consumers are uncertain about securing supply.
Original equipment manufacturers have been slow to issue sales orders, leaving producers unsure about next year's demand for special high-grade (SHG) zinc. Market participants have mostly adopted a wait-and-see approach as they try to determine whether current tightness will persist or ease once industrial consumption trends become clearer.
The International Lead and Zinc Study Group forecasts that global supply of refined zinc will outpace demand in 2026 and lead to a surplus of 271,000t, which implies that the current backwardation may not be sustained.
The EU imported 674,426t of zinc in January-August, down by 5pc from the same period last year, suggesting demand has softened.
Some sources noted that they are not rushing to finalise contracts as they are covered for the first couple of months of 2026. A recent decline in customer appetite has led to a reduction in volumes sought by buyers through long-term contracts, increasing expectations that spot purchases may rise next year to compensate. Buyers are reluctant to overcommit in a market where short-term pricing remains unpredictable.
Most European market participants expect next year's long-term premiums to settle near to $220/t, but at least one major producer is pushing for $250/t. This gap between buyer targets and producer offers is contributing to slower decision-making. Current negotiations are aligning closely with spot premiums, with the Argus weekly assessment for the SHG zinc in-warehouse Rotterdam premium last assessed at $230-260/t on 17 November.
A similar situation is unfolding in the US market, where a large number of 2026 negotiations are incomplete, despite many buyers initially hoping to finalise their contracts before the Thanksgiving holiday on 27 November. US premiums have so far been between 18-21¢/lb ($396-463/t) in spot and long-term negotiations.
