August Refined Zinc Production Realized: Where Will September Production Head? [SMM Analysis]

SMM, September 1:

In August 2026, China's refined zinc production increased by more than 2.6% MoM but fell by nearly 8.7% YoY. From January to August, cumulative smelter production was up less than 1% YoY, below expectations. August smelter production fell short of expectations mainly because output growth at some large plants underperformed, while additional maintenance occurred beyond expectations. The August decline was mainly driven by supply reductions in Inner Mongolia, Sichuan, Hunan, Shaanxi, and Anhui, while production resumptions after maintenance and output increases in Hunan, Henan, Guizhou, Yunnan, Guangxi, Gansu, and Qinghai contributed the main growth.

SMM expects China's refined zinc production to decline by 2.9% MoM and 7.4% YoY in September 2026. From January to September, cumulative smelter production is expected to fall by nearly 0.3% YoY. The notable decline in September smelter production is mainly due to sudden maintenance and production cuts at smelters in Guangxi and Henan, with other reductions primarily caused by maintenance and production cuts in Inner Mongolia, Sichuan, Hunan, and Guizhou. Growth is mainly concentrated in Gansu, Yunnan, and Hunan, driven by production resumptions after maintenance.

Overall, smelter production in August fell short of expectations, and the decline in September output was pronounced. On one hand, domestic zinc concentrate TCs in China accelerated downward in August to -1,850 yuan/mt in metal content, while imported TCs dropped to -$112.91/dmt. With the 80/20 zinc concentrate sharing arrangement, the combined TC was around 400 yuan/mt in metal content, leaving raw material prices for smelters basically flat with zinc ingot prices and driving a marked rise in smelter raw material costs. On the other hand, from the perspective of smelter profit distribution, more than 80% of profits came from by-product earnings, namely sulphuric acid and minor metal income. In August, the average sulphuric acid price fell by 300-500 yuan/mt during the month. Based on a 1:1.7 sulphuric acid revenue ratio, smelter sulphuric acid earnings dropped by around 500-850 yuan/mt, widening smelter losses and dampening overall production enthusiasm.

Looking ahead to Q4, given that zinc concentrate TCs are unlikely to rebound significantly, raw material prices stay high, and mines in northern China are in the off-season, raw material supply remains tight. Smelters have little willingness to ramp up production, and with full-year profits still moderate overall, there is a possibility of further production cuts by year-end. Production is expected to remain low.

In addition, with low production at overseas smelters, LME zinc inventory has stayed below 100,000 mt, and the LME Cash-3M backwardation has widened to a high of around $200/mt. Bull positioning is highly concentrated, and zinc prices have risen all the way, breaking through a four-year high. Market risk is elevated, so we advise caution in trading. Also, watch for changes in macro sentiment and the volume of LME warehouse deliveries after domestic zinc ingot exports.

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