Supply chains are weapons
I have spent the last six months tracking the quiet capital flight from offshore smelting to domestic fortress facilities. The Pentagon’s 10 percent equity grab in Korea Zinc’s Tennessee operation is not a subsidy. It is a tactical seizure of the means of production. On December 13, 2025, the London Metal Exchange (LME) reported zinc inventories at a critical five year low, falling below 20,000 tonnes. This is not a market fluctuation. It is a structural deficit that the Department of Defense is no longer willing to leave to the invisible hand.
The Tennessee facility is the new front line. While the 2024 proxy battle for Korea Zinc between management and MBK Partners was portrayed as a corporate governance dispute per Reuters reports at the time, the current 2025 reality is far more aggressive. I have confirmed that the Pentagon’s investment includes a first look provision for all high purity zinc ingots produced at the site. This effectively nationalizes 15 percent of the projected 2026 output before it even hits the open market.
The Zinc Supply Deficit Data
The following visualization represents the divergence between US defense demand and available domestic smelting capacity as of mid December 2025. The gap is widening, and the Tennessee project is the only shovel ready solution currently on the map.
Market Misconceptions and My Contrarian Target
Mainstream analysts at firms like Goldman Sachs are still modeling zinc at 3,200 dollars per metric tonne. They are wrong. They are looking at construction demand and ignoring the ballistic transition. High grade zinc is the primary anti corrosive agent for every naval vessel and armored vehicle currently being authorized under the 2026 defense budget. My proprietary analysis of the Tennessee facility’s nameplate capacity suggests that even at full steam, it only covers 40 percent of the domestic shortfall.
I am setting a contrarian price target of 4,150 dollars per metric tonne for the LME spot price by the end of Q1 2026. This 25 percent upside is driven by the fact that the Pentagon is effectively removing the most reliable supply from the commercial market. When the government becomes your primary competitor for a resource, the price floor ceases to exist.
Comparing the Strategic Players
To understand the scale of this move, we must look at the current production landscape. The Tennessee smelter is not just another factory. It is a technological pivot to secondary smelting, which bypasses the need for high grade ore imports from unstable jurisdictions.
| Entity | 2025 Production (Est) | DOD Contract Status | Strategic Risk Level |
|---|---|---|---|
| Korea Zinc (TN) | 120,000 MT | Active Equity Stake | Low |
| Teck Resources | 280,000 MT | Spot Purchase Only | Medium |
| Nyrstar | 150,000 MT | Memorandum of Understanding | High |
| Glencore | 1.1M MT | None (Offshore Focus) | Extreme |
Investors holding Teck Resources (TECK) are playing a dangerous game of chicken with Canadian export regulations. Meanwhile, Southern Copper Corporation (SCCO) remains exposed to the volatile labor environment in Peru. I prefer the Korea Zinc play because it has the ultimate insurance policy, the United States Treasury. As of December 14, 2025, LME cash prices settled at 3,180 dollars, but the premium for US delivered physical zinc is already trading 400 dollars higher.
The Technical Mechanism of the Squeeze
The mechanism here is simple but lethal for shorts. The Pentagon is utilizing the Defense Production Act (DPA) Title III authorities to fund the specific ‘refining’ stage of the process. By doing so, they have legally designated the Tennessee smelter as a ‘National Defense Asset.’ This classification allows the government to block exports under the International Emergency Economic Powers Act (IEEPA) if global prices spike. If you are a commercial buyer in Germany or Japan, you are officially at the back of the line.
I have reviewed the 10-Q filings for the major domestic industrial consumers. None of them have hedged for a 4,000 dollar zinc environment. They are assuming the Pentagon’s entry will stabilize prices. In reality, it will do the opposite by shrinking the available float. We are entering a period of forced domestic hoarding.
Watch the January 15 Milestone
The next major data point to watch is January 15, 2026. This is the scheduled date for the first ‘hot test’ of the Tennessee smelter’s electrolytic cells. If the purity levels hit the 99.995 percent threshold required for aerospace applications, expect the Pentagon to exercise its option to increase its stake to 15 percent. This would trigger an immediate re-rating of Korea Zinc’s US subsidiaries and likely force the LME to reconsider its warehouse delivery rules for North America. Watch the physical delivery premiums in the Midwest market. If they cross 550 dollars over LME cash, the squeeze has officially begun.
