(Andy Home is a Reuters columnist. The opinions expressed are his own)
LONDON, May 7 (Reuters) - Markets are fickle things.
A few months ago zinc was the only game in town among the base metals traded on the London Metal Exchange (LME). The market was chasing a bullish story of pending supply shortfall as some of the world's largest mines reach the end of their natural lives.
Now, however, metal bulls are shunning the zinc market, turning their attentions to nickel with its equally compelling story-line of mine shortfall after the January imposition of a ban on nickel ore exports by Indonesia.
LME three-month nickel has gained 30 percent, while three-month zinc has fallen by 2 percent since the start of this year.
So what has changed to explain zinc's fall from bullish favour?
Nothing, according to Canadian producer Teck Resources , which in its Q1 2014 results reiterated the bull argument for zinc.
"We believe the outlook for zinc is the most favourable of the base metals. With recent and expected closures of a number of zinc mines, we believe that approximately 1.5 million tonnes of current zinc mine production will be closed by the end of 2016 in a 13 million tonne per year market."
It's been a long time coming as producers eked the last out of their aging properties but those mine closures are now starting to happen.
In Canada Glencore's Brunswick and Perseverance mines with combined output of 316,000 tonnes in 2012 have gone.
In Ireland Galmoy has also gone and Lisheen will be next, wiping another combined 350,000 tonnes off the global mine supply chain.
In Australia the Century mine is totemic of the zinc story. What is one of the world's largest zinc mines will close around the middle of next year, which is actually a little earlier than previously expected.
The underlying bull story, in other words, remains on track.
The issue, though, is one of timing.
Right now, there is no sign of tension in the zinc concentrates market.
Indeed, this year's benchmark treatment terms marked a shift in favour of smelters over miners, suggesting improved rather than impaired availability.
At a headline level the fee charged by smelters for transforming mine concentrate into metal rose to $223.50 per tonne from $210.50, according to Belgium's Nyrstar, one of the largest refined zinc producers outside of China.
Factoring in the esoterica of escalators and de-escalators, the zinc market's convoluted price participation formula, this year's terms represented a 6-percent improvement on 2013, Nyrstar said.
Moreover, it told analysts on its Q1 conference call that it has achieved better terms still on "significant quantities of zinc concentrates."
The zinc bull story, in other words, remains a slow fuse affair, in contrast with nickel, where the impact of the Indonesian ban is thought to be already impacting run-rates in China's giant nickel pig iron sector.
FOREWARNED IS FOREARMED
That extended time-line, meanwhile, injects an element of uncertainty into the bull story.
The clock may be ticking for many of the world's best-known zinc mines but there is already a building reaction.
Teck, for example, followed its bullish exposition on the zinc market's fundamentals with an announcement it will be reactivating its Pend Oreille mine in the U.S. state of Washington.
Pend Oreille has been on care and maintenance since 2009 but can be ramped up to its 44,000-tonne per year capacity quickly, seven months to resume activity and a further five months to hit full production.
Other existing operators are doing likewise. Glencore is partly offsetting the loss of its Canadian mines by expanding its Australian operations and bringing on stream new mines such as Perkoa in Burkino Faso.
Meanwhile, the very strength of the bull narrative is incentivising the reactivation of long-forgotten mines.
The Caribou property in Canada has a fifty-year history of stop-start (mainly stop) operations, the previous owner Blue Note going into administration after being wiped out by the price collapse of 2008-2009.
A new owner, Trevali Mining, is now working on a financing package to reactivate the mine with a targeted start date of 2015.
It is just one of many smaller players looking to capitalise on the coming zinc rush.
The current analysts consensus is that there will still be insufficient new or reactivated supply to fill the gap left by large mines such as Century.
But the mathematics are not set in stone. Rather, they are price dependent and shiftable, not least in the statistical black hole that is the Chinese zinc mining sector.
One of the reasons investors are flocking to the nickel market is because there is no obvious geological replacement for the loss of nickel ore from Indonesia. The world is not so constrained when it comes to zinc deposits.
STILL A "SELLER"
While the bull story bubbles beneath the surface in the raw materials sector, it is obscured by high legacy stocks in the refined zinc market.
The International Lead and Zinc Study Group assessed the global refined market as being in deficit last year and is forecasting another, bigger deficit this year.
Most analysts agree. Out of 14 submitting a market balance forecast in Reuters' Q2 base metals poll, only four are expecting surplus.
LME stock developments appear to bear that out, falling back to levels last seen in 2011. However, the emphasis should be on the word "appear" in that sentence.
Zinc has become enmeshed in the LME warehouse queue games, which have hopelessly compromised visible inventory as any sort of "true" price signal, a point reinforced by the appearance, or maybe re-appearance, of almost 150,000 tonnes at New Orleans in March.
It's interesting that Nyrstar, for example, is cautious about the outlook for the zinc price over the rest of this year, citing "uncertainties around the new LME warehouse rules", a reference to the exchange's proposal, currently on hold due to an adverse UK High Court judgement, to force faster load-out from its warehouse operators.
Not that Nyrstar is any less bullish long-term than Teck. It's just in the short term it remains a "seller" in the form of continued hedging against the downside.
Extending its operations from last year, it has price-protected 20,000 tonnes per month in the February-June 2014 period, using a combination of put options and forward sales.
Its actions speak louder than any words. The good times may be coming for zinc, but they are not here yet.
The hot money appears to agree, which is why it has left zinc for nickel, a market that promises much more much sooner.
(Editing by William Hardy)