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Fund managers have turned increasingly negative on lead and zinc’s price outlook and the latest forecasts from the International Lead and Zinc Study Group will do little to change their minds.

Both metals are expected to be in supply surplus this year, a turnaround for zinc but the third consecutive year of over-supply for the lead market.

The two metals are geological sisters, as they tend to be sourced from the same mines. Right now, they are also bound by weak demand.

ILZSG, which has just met for one of its twice-yearly catch-ups, estimates both metals experienced falling usage in 2024 and the group is forecasting only a modest recovery this year.

Zinc loses its shine

Zinc has under-performed the rest of the London Metal Exchange base metals pack so far this year.

After sliding to a one-year low of $2,515.50 per metric ton earlier this month, LME three-month zinc has since recovered to $2,636.00, but is still down by 11% on the start of January.

Fund managers have cut long positions and scaled up bearish bets into the recent price weakness. The collective net long has shrunk from almost 41,000 contracts in the middle of March to just 1,781.

Zinc market dynamics did not turn out as expected last year, a third year of falling mine production restraining metal output and pulling the market into a small 15,000-ton deficit.

That will turn to a 93,000-ton surplus this year, according to ILZSG.

Global mine output is forecast to grow by a robust 4.3% year-on-year, feeding a 1.8% rise in refined metal production.

There are signs this turnaround is already happening. Spot smelter treatment charges have bounced higher from last year’s record lows, signalling improved availability of mined concentrate.

Chinese smelters have pounced on the extra supply with first-quarter imports of zinc concentrates up by 37% year-on-year in the first quarter of 2025.

However, zinc demand will not be enough to absorb the extra supply. ILZSG is forecasting usage to rise by just 1.0% in 2025, a significant downgrade from the 1.6% rate expected at the Group’s September 2024 meet.

Zinc’s problem is that 55% of global demand comes in the form of galvanized steel for construction, a sector that is weak everywhere, not least in China.

Moreover, the group said even its modest forecast growth rate may be optimistic if global economic growth slows “due to uncertainties linked to trade policy”.

More weight for heavy metal

Lead’s demand profile is quite different from that of its sister metal with automotive batteries accounting for 65% of total usage and replacement demand accounting for around 75% of that.

Weak automotive sales and an underlying shift towards electric vehicles, which use smaller lead-acid batteries than internal combustion cars, combined to drag global lead demand down by 0.8% last year.

ILZSG is expecting a return to 1.5% growth in 2025 on the back of stronger passenger car production in the West and China.

But refined production will rise by a faster 1.9%, generating an expected 82,000-ton supply surplus. The lift in mined zinc output this year will inevitably mean more lead and ILZSG forecasts mined lead supply will grow by 2.3% in 2025.

A forecast third year of lead over-supply will reinforce funds’ bear positioning in the LME market.

Investors were net short of LME lead to the tune of a record 25,700 contracts in January.

Many got burned as LME three-month metal rose to $2,100 per ton in March but the early-April collapse to a two-and-a-half year low of $1,837.50 has seen the bears return. The net short has grown back to over 23,000 contracts.

Shrinking premium

The lead price has proved surprisingly resilient given conspicuous surplus in the form of elevated exchange inventory. LME three-month metal is trading marginally up on the start of January.

That has shifted the relative-value trade between the sister metals with zinc’s premium over lead contracting from over $1,000 per ton in December to $668.

With so much lead demand coming from replacement batteries, the heavy metal is less vulnerable to the sort of macro turbulence highlighted by the ILZSG in its zinc forecasts.

Moreover, funds are already so bearish on lead’s price prospects, it’s hard to see how much more selling they can muster.

Zinc, by contrast, is a market in supply transition and funds have only started turning bearish as evidence of that shift in dynamics accumulates.

Just how more bearish they could become remains to be seen.

(The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.)

(Editing by Barbara Lewis)