That run was predicated on a supply shortage but was really fueled by speculation. Remember the context: in 2006 and 2007 the precious metals markets were rocking, mining markets were hopping, uranium had been on a tear, copper was killing it – the audience was excited to hear about another metal with opportunity and so the run took on a life of its own.

This time the situation is much more fundamental. A series of major mine closures over the last few years has cut into supply. Demand basically rises with population. Those divergent trends are now colliding and there are very few new projects ready to fill the gap.

The collision first manifested in a shortage of concentrate: refineries couldn’t get their hands on enough con, proof of which was evident in treatment charges that fell by two thirds in 2016 (treatment charges are what smelters charge miners to process their concentrates).

While the market has absolutely been facing a shortage of concentrate, it has not yet been short on refined metal. Inventories have been filling that gap, but now those stockpiles are getting pretty low.

OK, so that all sounds pretty bullish. What changed of late? The answer seems to be that mines with capacity have increased production.

Nystar has restarted three mines in Tennessee, Vedanta has lifted output at Rampura Agucha in India, Nevsun’s Bisha mine entered the market when its zinc circuit came on line last year, and the Antamina mine in Peru (owned by a consortium of Glencore, BHP, Teck, and Misubishi) is doubling output this year.
Glencore also increased output from several of its mines, which reduced its 500,000-tonne production cut to 350,000 tonnes in 2016. And Chinese mine supply increased by roughly 20% last year.

Even though they are dampening further price gains, these production increases are expected. Going forward, the zinc market remains undersupplied in the long term. Decades of low zinc prices (short spikes aside) mean there simply are very few build-ready zinc projects.

I see zinc’s slowdown as healthy. The 2016 price gain was enough to bring oodles of new attention to the metal. A year ago you could count zinc-focused exploration and development companies on one hand; today you need all your digits and then some.

That is good – we need explorers and developers to stay focused on zinc for several years, long enough to develop an actual pipeline of build-ready assets.

A zinc price of even $1 per lb. is probably enough to maintain that interest, to act as a foundation for a vibrant zinc market offering good investment opportunities. Sure, higher would be better, and I do expect zinc to end the year higher than it is today, but consolidating for a time in response to increased production shows that this price move is truly based in fundamentals, not speculation, and that is a good thing.