Orient Securities Company Limited has released a research report projecting an upward trajectory for zinc prices, driven by supply-side rigidities and emerging demand from new infrastructure sectors. The brokerage recommends focusing on companies with self-sufficient zinc concentrate, large-scale smelting operations, and the capacity to recover byproduct rare and scattered metals. Key picks include Zhuzhou Smelter Group Company Limited (600961.SH, Buy), which is noted for its large lead-zinc smelting scale and increasing self-sufficiency in ore. Other highlighted stocks include Yunnan Chihong Zinc and Germanium Co., Ltd. (600497.SH, Unrated), China Nonferrous Metal Industry's Foreign Engineering and Construction Co., Ltd. (000060.SZ, Unrated), and Jinhui Mining Incorporated Company (603132.SH, Unrated).
Zinc: A Foundational Industrial Metal Dancing with Rare and Scattered Metals
Zinc, known for its excellent wear resistance and ductility, is widely used in construction, urban development, and other infrastructure-related sectors, making it a critical industrial metal. Furthermore, the supply of rare and scattered metals such as germanium, indium, cadmium, gallium, and thallium is highly dependent on the development of lead-zinc ores. Some market participants believe that downstream demand for zinc is stable or even weakening, and with expectations of increased mine supply, companies focused on zinc mining and smelting may lack earnings growth momentum. However, the report argues that the supply of metallic zinc is structurally rigid. AI-driven demand for new infrastructure and a boom in the shipbuilding industry could exceed expectations for zinc consumption. Additionally, expectations of a reversal in interest rate hikes could provide financial support for zinc prices, and the supply of rare and scattered metals, which is tied to lead-zinc ore development and smelting recovery, warrants investor attention.
Supply Side: Concentrate Supply is Highly Rigid, Smelting Constraints on the Horizon
On the mining side, global supply of zinc concentrate is concentrated, and with lower exploration investment in recent years, limited new projects, and declining ore grades at existing mines, the growth rate of zinc concentrate output is expected to slow from 2026 onward. In the smelting sector, the shortage of ore has pushed profits, excluding byproduct revenues, into loss territory, potentially forcing smelters to cut output to reduce losses. Electricity costs account for about 40% of electrolytic zinc smelting costs, and the growing global power supply gap, exacerbated by AI demand, could further constrain smelting operations. For recycled zinc, stricter regulations on "invoice economy" in China since 2026 are expected to tighten supply, signaling growing constraints on refined zinc output.
Demand Side: New Infrastructure Wave Emerges as a Key Driver, Shipbuilding Boom Adds Marginal Growth
Zinc demand is primarily driven by the construction and infrastructure sectors, where galvanized sheet accounts for 60% of consumption. The global surge in AI computing demand has sparked a wave of investment in new infrastructure, including AI data centers. Galvanized sheet, valued for its corrosion resistance and conductivity, is used in racks, cabinets, cable management, and other structural components in data centers. The report estimates that zinc consumption in data centers could grow from 140,000 tons in 2025 to 340,000 tons by 2030, fueled by AI demand. Meanwhile, the shipbuilding industry is experiencing a high level of activity, with ample order books providing a source of marginal demand growth. The use of zinc in sacrificial anodes for shipbuilding is expected to see a compound annual growth rate of 5% from 2025 to 2030, with a surge in deliveries likely over the next 2-3 years. With supply constraints becoming more apparent and demand from new infrastructure strengthening, the report forecasts a significant supply deficit by 2028, providing upside potential for zinc prices.
Financial Attributes: Rate Hike Expectations Poised to Reverse, Liquidity Supports Upside Momentum
The escalation of the U.S.-Iran conflict has pushed up crude oil prices, sparking inflation concerns and fears of a shift toward interest rate hikes. However, with the U.S. K-shaped economic recovery showing signs of weakening on the consumer side and the easing of the U.S.-Iran conflict cooling June CPI inflation data, expectations for rate hikes may reverse. Looking back at past rate-cutting cycles, zinc prices have often begun to rise in the early stages of rate cuts. Current market pricing for the probability of a rate hike has been slightly revised, presenting a window for a potential reversal in expectations, which could inject upside elasticity into zinc prices.
Risk Warnings
Risks include macroeconomic and geopolitical volatility, weaker-than-expected downstream demand, delays in policy implementation, oversupply from mines, inaccuracies in production capacity statistics, and changes in assumptions affecting the accuracy of estimates.