China's Zinc Glut Is Finding Its Way Southeast, But Only Just

By Siam Sukkhee Trading Co., Ltd — 2026-07-18 — zinc trading Southeast Asia

I watched a small Chinese shipment clear for Bangkok last week. Trial cargo, not the real thing.

The gap between Shanghai futures and LME zinc hasn't looked this wide since 2022. We're talking over $400 a tonne, which sounds enormous until you start working through what it actually costs to move zinc across the region. Then it gets interesting, or depressing, depending on your position.

Here's the shape of it. LME zinc hit $3,600 a tonne in late June and has climbed maybe 12% since January. Shanghai's most-traded contract barely moved 4% in that same window. One market sits drowsy on surplus supply. The other one's tight enough that backwardation has hit $320 per tonne out to December 2026. Different realities entirely.

China's domestic glut isn't mysterious. Refined zinc production is running nearly 4% ahead of last year while domestic demand growth is basically invisible. Shanghai Futures Exchange warehouses are sitting well above normal for this time of year. According to Fastmarkets, Chinese supply is growing at roughly four times the rate of domestic consumption, and the country's tracking toward its first net export position in four years. Something has to give.

Actually, that's not quite right—it's not that something has to give. It's that someone has to find a buyer. Those trial shipments we're seeing now are scouts. They're testing whether Southeast Asia and South Asia make sense as outlet markets, which they obviously do on pure logistics. The CIF premium into Southeast Asia runs around $100 a tonne. Reasonable enough until you factor freight, insurance, credit costs, and the fact that your money sits tied up in transit for weeks.

The traders who can move first aren't the mid-sized houses. They're the large operations with established buyer networks across the region, warehouse relationships, and financing costs that don't make you weep. Those advantages matter more than anything when you're operating on margins this thin. Most Chinese traders don't have that infrastructure.

You need the spread to widen another $100 minimum.

That's not my number—that's what the market participants told Bloomberg, and frankly, I believe them. A $400 spread sounds powerful. On paper it is. But once you've paid to move the stuff across water, hedged the price risk, funded the operation, and accepted that your capital is in transit for a month, you've eaten through most of that margin. The spread right now is doing more work as a signal than as actual money.

The ceiling on how long this holds is real. Spreads this wide attract enough flow to compress themselves down again. Yes, backwardation on the LME reflects genuine near-term tightness. But globally, refined zinc is still in surplus—something like 200,000 tonnes projected for 2026. That puts limits on how far international prices can really run ahead of what the fundamentals say they should be. Once Shanghai inventories start improving, the arbitrage case weakens fast.

Whether this actually becomes a meaningful export play depends on two things neither of us can predict. LME inventory recovery. Southeast Asian demand in the second half of the year. The only thing that's certain is that Chinese producers need this window to hold open. Sitting on a growing domestic surplus without an export valve isn't a position anyone enjoys, and right now southeast is the only relief valve in sight.

We'll see if the math works when it matters.

Tags: Fastmarkets, SHFE, zinc exports, Chinese zinc Southeast Asia 2026, zinc arbitrage export window, Shanghai LME price spread