LONDON, Aug 16 (Reuters) - Citibank has bought large amounts of zinc on the London Metal Exchange (LME) and arranged a lucrative deal to store the metal in LME approved warehouses, two sources with knowledge of the matter said.

While the exact quantity bought by Citi is difficult to determine, zinc stocks in LME warehouses in Singapore have jumped 54% to 141,750 metric tons over the past two days, the highest since March 2022.

Much of the zinc going on LME warrant - a title document that confers ownership - was sold into the system by Swiss-based commodity trader Trafigura and London-listed mining giant Glencore, the sources said.

Citi, Glencore and Trafigura declined to comment.

Demand for zinc, used to galvanise steel, has stalled alongside manufacturing activity around the world and industry sources say the surplus is being delivered to the LME, a market of last resort for some industrial metals.

Citi has bought the zinc for so-called "rent deals" with warehouse companies in which the fees or rent for storing metal in LME facilities are shared, the sources said.

Rent for metal on LME warrant is often five times higher than metal in storage that is not deliverable to LME warehouses. Rents for storing zinc in LME warehouses can average 54 U.S. cents a ton.

Industry sources say smelters continuing to produce zinc even as demand weakened have fuelled the surplus.

"Steel sectors are slowing down so there's not much call for galvanising right now; that's fallen off a cliff," said Robert Montefusco at broker Sucden Financial.

Analysts polled by Reuters last month expected a global zinc market surplus of 135,500 tons this year.

A significant inflow of zinc into Singapore started three months ago, leading to off-LME inventory buildup. The Southeast Asian country brought in a total 117,464 tons of SHG zinc in May and June 2023, up from 32,634 tons in the same period last year.

"We saw a similar inflow in July, and more delivery is expected," a Singapore-based trader said, adding the origins of zinc ingots are from Spain, South Korea and India.

The benchmark zinc price fell to $2,265.50 a metric ton on Wednesday, the lowest in more than two months and a drop of 35% since late January. (Additional reporting by Eric Onstad Editing by David Goodman, Kirsten Donovan)