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(Repeats with no changes. The opinions expressed here are those of the author, a columnist for Reuters)
By Andy Home
LONDON, Feb 17 (Reuters) - The recent history of the zinc market has been one of reality trumping great expectations.
Everyone loves the zinc narrative of pending supply crunch. It's just that it's been a long, long time coming with plenty of false starts over the last few years.
Big mines such as Century in Australia and Lisheen in Ireland have closed. The resulting tightening in the raw materials segment of the supply chain has been accelerated by Glencore's suspension of 500,000 tonnes of annual mine capacity.
But conspicuous by its absence has been any flow-through impact on the refined metal market.
That, however, has just changed with Korea Zinc saying it will cut refined zinc production by 7.7 percent, or around 50,000 tonnes, to 600,000 tonnes this year.
The company attributed its decision to tight supplies of mined concentrate and the accompanying reduction in treatment charges.
It is the first sign that raw materials shortfall is translating into refined metal shortfall.
All that is missing for zinc bulls, of which there are many, is for a tightening physical market to start impacting visible stocks of metal. And particularly those sitting in London Metal Exchange (LME) warehouses in New Orleans.
Outside of China mine supply of zinc fell by 10 percent last year, according to the International Lead and Zinc Study Group (ILZSG).
That sharp contraction followed four years of mild decline or, at best, flattish growth.
That's how long zinc's bull story has been running but it's only now that the accumulating pressures in the mined concentrates part of the supply chain are working their way into the refined metal market.
Slowing the transmission mechanism have been stocks of concentrates, one of the last visible parts of the supply chain.
But quite evidently, if Korea Zinc had sufficient stocks, it wouldn't be cutting production.
All eyes are now on China and its zinc smelters, which have historically had to top up raw materials supply from domestic mines with imports of concentrates.
Imports slumped by 38 percent last year to 2.0 million tonnes (bulk weight) from 3.2 million tonnes in 2015.
Chinese figures for mined zinc production are notoriously problematic but falling treatment charges and falling imports suggest supply stress is building there too.
Canadian producer Teck Resources suggested in the market commentary section of its Q4 results that Chinese "stocks of zinc concentrates were drawn down to critical levels last quarter."
The inference is that's it's only a matter of time before Chinese producers follow Korea Zinc and are forced to curtail run-rates due to raw materials tightness.
All this is pre-written in zinc's bull narrative. It's why the galvanising metal was the best performer among the major LME-traded metals last year and why it's up another nine percent so far this year at a current $2,840 per tonne.
The missing part of the story so far is any sign of pressure on visible stocks of metal.
LME zinc stocks currently stand at 390,850 tonnes. They are a lot lower than they used to be. This time four years ago the headline figure was over 1.2 million tonnes.
But the decline last year was a highly modest 35,000 tonnes despite an assessment by ILZSG that the global refined zinc market recorded a supply-demand deficit of 286,000 tonnes.
Filling the gap has been unreported inventory sitting off-exchange, particularly in New Orleans.
The market got badly wrong-footed in both 2014 and 2015 by stocks miraculously reappearing in the LME system at the U.S. port.
The metal had apparently been drawn down but not for physical consumption. It had just been on a merry-go-round between on- and off-market storage, any price signal being obscured behind the smoke and mirrors of the financing trade, predicated as it is on cheap storage.
The U.S. port still holds more LME zinc than any other location, 346,125 tonnes or around 89 percent of the total.
And there is still a sense that there is more sitting in New Orleans than is visible in the LME's daily stocks reports.
This month has seen 18,525 tonnes of zinc put onto warrant at New Orleans in reaction to the flare-up of tightness on the nearby LME spreads.
It's a relatively small tonnage by comparison with some of the "arrivals" of the past, but it's a reminder that hidden zinc stocks could yet affect the timing of the next chapter of this market's expected development.
The exact size of any off-market stocks is impossible to say. You only get to see them when availability is tested in the form of a squeeze on the LME.
That's what happened earlier this month with cash metal trading out to a premium of $16.25 per tonne over three-month metal.
It doesn't sound a lot but it's the tightest the period has been since May 2015. The reaction came in the form of those deliveries onto LME warrant at New Orleans.
The zinc time-spreads on the LME have eased over the last few days with the cash-to-threes period CMZN0-3 returning to contango. It ended Thursday valued at $6.75 contango.
But physical availability for LME delivery is likely going to be tested again.
As of the close of business Wednesday one entity held LME warrant and cash positions accounting for between 80 and 90 percent of available tonnage.
Quite what the play is remains to be seen but the cancellation of 8,800 tonnes of zinc at New Orleans yesterday should serve as a warning flag.
Because New Orleans holds the key to LME stocks and LME stocks hold the key to the next phase of zinc's accelerating bull story. (Editing by David Evans)