World consumption of zinc is about 13 to 14M tonnes a year, and China is both the largest producer and consumer. Zinc Market Outlook • Steel galvanizing and zinc alloys account for most of the demand for zinc • China leads production, followed by Peru and Australia and accounts for 60% of global supply • China is the main consumer worldwide • The use of zinc in agriculture is a new application • Growth in demand is anticipated to be slow but steady • Mine supply is shrinking, which will eventual lead to a shortfall in supply In 2015, despite calls for a price rally, zinc declined steadily, touching a six-year low of well under 70¢/lb. in the first month of 2016. During 2015, Glencore shuttered 500,000 tonnes of annual production, MMG's Century and Vandata's Lisheen mines were depleted, China reduced smelting capacity and Nystar closed its Middle Tennessee mines and put all six of its zinc mines up for sale. After a devastating start to the new calendar year in global stock markets, followed by a gloomier-than-expected U.S. economic outlook, February 2016 saw the biggest rebound in mining stocks since the global financial crisis; zinc rebounded to 80¢/lb last Thursday. Even though zinc struggled in 2015, analysts and other market watchers believe the metal's fundamentals remain strong, and they expect a sustainable price recovery in the second half of 2016, driven by demonstrable tightening of supply. While several new mine projects wait in the wings, including Vendata's Gamberg in S. Africa and MMG's Dugald River in Queensland, funding new zinc mines is highly challenging. In the past week, Macquarie attended the International Zinc Association conference in Phoenix and reported that recent zinc price strength is likely to fade, while the metal is expected to be in truly tight supply in the second half of 2016. CRU's Zinc Market Outlook also concludes that the market is about to tighten significantly. Graham Deller of CRU writes: "excess concentrate stocks are already almost exhausted, and metal inventories will soon start to fall quickly too, as price-induced mine cutbacks add to the effects of last year's ore exhaustions". CRU also commented that while a switch to major deficit now looks inevitable, developers' response to zinc's looming supply gap is still muted at best. Neither established producers nor potential new entrants yet have the cash to fund large-scale mine development, while most diversified producers remain wary about investing in an industry which has historically had such variable returns. Of course, strong fundamentals are of little help to investors waiting for a zinc price increase promised for the last several years. So what's an investor to do? A traditional guide is to carefully monitor inventory on the venerable London Metal Exchange, currently at about 500,000 tonnes, down from an over-supply peak of 1.2M tonnes in May 2013. The price of zinc historically maintains a lagging inverse relationship to inventory, now approaching a level indicating the end of over-supply. (Written by Peter Jones, Executive Vice President, Century Global Commodities Corporation)