This is an extract of an article in AFR about shortage of 6 metals including zinc and lead.

LME metal inventories plunge to critical levels

Inventories of base metals in London Metal Exchange warehouses have plummeted to critically low levels, sparking fresh concerns of a spike in prices that would leave physical commodity markets vulnerable to a short squeeze.

Available stockpiles across the six main contracts on the LME – copper, aluminium, zinc, lead, tin and nickel – have fallen to the lowest level on record based on data going back to 1997, Bloomberg says. Total LME inventory of the six metals has plunged to just 500,000 tonnes from about 6 million tonnes in 2010.

“The fact inventories are drawing down as far as they have shows that we’re in a deficit market where strong demand is being met with short supply,” said James Stewart, portfolio manager of Ausbil’s Natural Resources Fund.

“When inventories drop to these sorts of levels, it means prices are likely to move higher, and also increases the likelihood of a squeeze.

Analysts have pointed to zinc being particularly susceptible, with stocks in LME warehouses falling 40 per cent since December to 127,675 tonnes, lifting prices this week to the highest level since 2006.

Reports that commodity trader Trafigura, and other companies, are withdrawing significant volumes of zinc from LME warehouses to make up for a shortfall in global supplies is placing further pressure on markets.

“The risk is rising of a squeeze in the LME zinc market,” said Warren Patterson, head of commodity strategy at ING.
Freely available zinc inventories have now shrunk by more than 60 per cent in less than three weeks as high power prices force smelters to cut back production. Strategists are warning that a fresh surge in power prices could place further strain on zinc supply.

The concerns follow a historic short squeeze in the LME nickel market last month which triggered a 250 per cent spike in prices, forcing the exchange to impose a 15 per cent limit on intraday swings.