Spot zinc price jumps on less output from Hindustan Zinc

Domestic market premiums up five times, while benchmark LME up only 10%

Despite having full linkage with the benchmark London Metal Exchange (LME), zinc prices saw an abnormal increase in India’s spot markets last month, due to a sharp jump in premiums on reduced supply from Hindustan Zinc (HZL), the country’s sole producer of primary zinc, of a million tonnes a year.

Data collated by the metal traders’ body, Bombay Metal Exchange Ltd, showed zinc prices jumped 35 per cent in spot market in February, from Rs 155 a kg on February 1 to Rs 210 a kg. Prices on the benchmark LME rose by only 10 per cent, to close February at $1,784.5 a tonne. This jump has disturbed the functions of user industries, including secondary metal producers which normally buy primary zinc from registered buyers of HZL for mixing with other metals to make an alloy, including brass. Also, zinc finds two-third of its applications in steel galvanising.

“The price increase is disproportionate in India to the LME. In February, the premiums on zinc jumped to $250 a tonne from $50 a tonne in January, due to supply shortage. Since zinc does not have any substitute, we don’t have any option but to bear the brunt of high cost of production. Unfortunately, we cannot import due to the five per cent import duty on zinc scrap and potential delay in delivery,” said Sanjay Mehta, President, Metal Recycling Association of India.

In fact, the basic price of high grade zinc is now up to Rs 140,443 a tonne as compared to Rs 136,607 a tonne for the second fortnight in February.

In response to a Business Standard query, an HZL spokesperson said, “Zinc-lead prices are governed by the LME and HZL is following the LME prices. The company has 100 per cent LME-linked annual contracts in place with steel manufacturers and traders.” HZL, however, confirmed that some of its smelters were running at lower capacity, as users claimed.

Rohit Shah, Director, Heena Metal, a brass producer, said: “The sudden spurt in zinc prices only in local markets has irked users like us. We need to re-negotiate with buyers for higher prices; otherwise, our margins would be under tremendous pressure.”

“It is true that due to the mining cycle of waste and ore production in sequence, smelters were running at lower throughput for a limited period. Currently, all smelters are running at peak levels. HZL has honoured all contractual commitments and quantities are being supplied after ramp-up of operations. Since it had a partial impact on our production, it would not have any impact on our annual targets as per our earlier guidance (forecast),” said HZL. It did not disclose the decline in production at its plants.