Interesting article djr and I'm becoming more convinced this is...

Interesting article djr and I'm becoming more convinced this is the real deal - heading towards the shortage. I also liked these points from the analysis:

• Demand holding steady; China still largely drives the boat when it comes to zinc demand, according to Ioannou, and while zinc demand growth is slowing in the country, it is still on the rise. Overall, global demand is set to rise 3.5 percent to 14.33 million tonnes this year, according to an April 2016 report from the International lead-zinc study group (ILZSG).

• Growing deficit; The ILZSG is forecasting a 352,000 deficit for 2016. That might not seem like much relative to the estimated 14.3 million tonne per year zinc market, but Ioannou admitted that this is “still a growing number,” and one that came in much higher than the market was expecting. “People were previously talking about 150,000 tonnes,” he said.

A 352,000 tonne deficit is not much more than the LME inventories now. Dropped again last night by 1225 tonnes so now 395,175 tonnes which is the lowest for many years. Suspect he is on the money to some degree with this:

The last time LME zinc inventories were this low was in 2005, at which point prices for the base metal spiked up to $2 per pound. That begs the question, why hasn’t a similar jump happened this time around?

“There is also zinc in off-market inventories, and the amount is somewhat vague,” Ioannou said. As with most metals traded on the LME, stocks held in warehouses tracked by the exchange are just one part of the supply picture.

The price didn't spike until it fell further, but get his drift. I also believe the zinc price has been constrained by the oil, iron ore and general commodities malaise, which is recovering slowly, the false start of last year with zinc prices on top of the Chinese inventories. On that note - good to see they are still falling, nine weeks in row now, see http://www.metal.com/site/search?cond=zinc inventories&yt1

Be interesting to see whether he's right about: "While he doesn’t think prices will go to the moon—China has plenty of potential zinc capacity that could come online if zinc prices spike high enough—he does see rising zinc prices on the horizon." I'm not convinced the Chinese have the capacity to make a serious dent in that 352,000 shortfall and the authorities are making it harder for some of these mines to operate due to environmental regulations.

Let's hope the recent trends continue - falling inventories, rising zinc price and recent improvement in the IBG share price. Only time will tell if this is the beginning of the new cycle, but it is looking very compelling