During China's National Day holiday period, LME zinc exhibited volatile trading patterns following an initial sharp decline, according to an analysis by Shanghai Metals Market (SMM) published on October 7, 2026. The LME zinc contract opened at $3,820/mt on October 1 and fell sharply by 2.28% to $3,728.5/mt, marking its lowest level since late August. The electronic contract briefly broke below the $3,700/mt support level on October 2, touching approximately $3,693/mt before closing at $3,701.5/mt.
This decline represented the lowest price recorded in approximately six weeks. The trajectory reversed following the release of weaker-than-expected US Non-Farm Payroll data on October 2. LME zinc recovered above $3,700/mt and closed at $3,740.5/mt on October 5, extending its rebound to $3,772.5/mt on October 6.
During Asian trading on October 7, LME zinc opened at $3,777/mt and recovered above $3,740/mt to stand at $3,763/mt by 18:00 Beijing time. Over the complete holiday period, LME zinc recorded a cumulative decline of 2.7%. Market structure indicators revealed easing tightness.
The LME cash-to-three-month spread narrowed significantly from approximately $85.77/mt on September 30 to $39.10/mt by October 6. LME zinc inventories increased from 124,000 mt on September 30 to 127,800 mt on October 6, a net gain of 3,800 mt, with increases primarily recorded at warehouses in Hong Kong and Kaohsiung, Taiwan. Off-warrant inventories remained broadly unchanged.
SMM noted that while the narrowing backwardation and rising inventories indicate easing physical market tightness overseas, absolute inventory levels remain low and the pace of accumulation has slowed markedly. Macroeconomic factors dominated price movements throughout the holiday. Market sentiment turned sharply hawkish at month-end when the US PMI rose to multi-year highs and Federal Reserve officials made hawkish comments.
The five-year US Treasury yield exceeded 5% for the first time since 2007, while the ten-year yield reached 5.344%, its highest level since 2002. The US dollar index strengthened to a 17-month high, exerting broad downward pressure on base metals. However, unexpectedly weak US employment data reversed market expectations.
Data released on October 2 Beijing time showed that the US economy added only 29,000 jobs in September, compared with expectations of 90,000 and the previous reading of 133,000. The unemployment rate rose to 4.2%. According to CME data, the probability of an October rate hike plunged to 15-28% from approximately 70-80% one week earlier.
The US dollar retreated from its 17-month high and Treasury yields moved lower. Positioning data published by LME on October 6 showed that investment funds reduced long positions by approximately 4,900 lots and added around 2,500 lots of short positions during the week ended October 2. Their net-long position as a percentage of open interest fell from 13.4% to approximately 11.4%, suggesting that trend-following and momentum funds contributed to the initial decline.
On China's domestic fundamentals, the zinc concentrate market remained tight but eased marginally. The SMM Zn50 domestic zinc concentrate treatment charges fell by 250 yuan to minus 2,350 yuan/metal mt in the week before the holiday, while the imported zinc concentrate index declined by $5.32 to minus $135.72/dmt. The combination of low treatment charges and weak sulphuric acid prices has widened smelting losses and dampened producers' willingness to operate.
China's refined zinc output is expected to increase only modestly to approximately 564,000 mt in October, remaining below previous expectations. Smelters' raw-material inventories recovered slightly to more than 18 days on additional imported concentrate entering the market. On the demand side, orders from transmission-tower and high-end small hardware sectors improved slightly, while most other categories remained subdued.
Weak ferrous-metal prices and elevated zinc prices constrained downstream purchasing, while export orders declined year on year. Downstream users conducted active pre-holiday restocking, pushing zinc ingot social inventories down further to 193,100 mt. The SHFE/LME zinc price ratio remained around 6.8, with both import and export windows closed.
Looking forward, SMM expects macroeconomic volatility to remain elevated as rate-hike expectations continue to fluctuate. With the US dollar index remaining above 102 and the market still pricing in the possibility of a December rate hike, upside room for LME zinc is expected to remain constrained. The preliminary October University of Michigan consumer survey and inflation expectations will be released on October 9, followed by September US CPI data on October 14.
On China's domestic outlook, active downstream restocking before the holiday is expected to create some inventory accumulation pressure after market reopening. However, with widening smelter losses constraining refined zinc output growth, the scale of post-holiday inventory accumulation will be a key factor to monitor. SMM notes that if inventories rise by less than expected, SHFE zinc may demonstrate relative resilience and the SHFE/LME price ratio could continue to recover.
The analysis emphasises that attention should be paid to the post-holiday policy response from Beijing's recent State Council executive meeting, which discussed measures aimed at stabilising the property market and supporting employment. For zinc, the main transmission channels are galvanised-steel demand associated with home appliances, automobiles and property construction.
Source: news.metal.com