Zinc to see turnaround in 3-4 years

Zinc prices should see a turnaround in the next three to four years as the supply glut is expected to ease following the closure of many mining and smelting units globally.

The total additional supply is expected to decline to 210,000 tonnes by the end of this year compared to 400,000 tonnes at the end of 2007. The surplus situation, market experts said, is likely to turn into a deficit a couple of years after that.
 

CHANGING FORTUNES Metal consumption (‘000 tonnes)
Year	India		Global
	Zinc	Lead	Zinc	Lead
2006	428	170	11,150	7,965
2007	469	175	11,474	8,212
2008	497	179	11,896	8,551
2009	539	195	12,392	8,872
2010	561	205	12,495	9,007
2011	585	210	12,764	9,219
2012	640	228	13,534	9,707

The production cost of Hindustan Zinc, India’s largest zinc producer with captive mines in Rajasthan, is Rs 35 a kg without including a royalty of around Rs 7 a kg that it has to pay to the government. At the current selling price of Rs 72 a kg in spot market, the company makes a profit of more than 100 per cent.

But the production costs of zinc producers, which do not have captive mines, is around Rs 75 a kg. These companies are becoming unviable — a reason why the excess capacity will slowly diminish.

China’s Zhuye in the Hunan province, for example, shut down its 400,000 tonne-a-year zinc production facility recently. The company also shut its 100,000 tonne-a-year lead smelter. Moreover, Arehada Mining has temporarily shut its zinc oxide production facility with a capacity of 50,000 tonnes per annum for the ongoing Olympic Games.

In yet another development, the mine workers at Namibia’s biggest zinc mine, Skorpion Zinc, have embarked on a crippling strike, sealing off the mine and paralyzing operations at the company’s 150,000 tonnes special high-grade zinc production facility following a salary deadlock.

Analysts said zinc companies will repen their facilities once the prices come back to cost-plus levels, but that will take three-four years.

Zinc prices are currently hovering at $1660 a tonne on the London Metal Exchange and Rs 72 a kg in the Mumbai spot market. Early this year, zinc was quoted at $4300 on the LME, while the metal was sold at Rs 126 per kg in Mumbai.

Consumption of refined zinc in India increased at a compounded annual growth rate of 8 per cent between 2002 and 2007. This is likely to continue this year as well despite the price fluctuation. The galvanizing sector, which accounts for about 65 per cent of zinc, will continue to flourish, given the rising demand from the steel sector on sustained infrastructure growth in the country.

Fueled by the growing demand from Asia, the global zinc consumption increased to 11.5 million tonnes in 2007, a marginal rise of 2.7 per cent from 11.2 million tonnes in 2006. Global zinc production increased to 11.2 million tonnes in 2007, a rise of 6.7 per cent from 10.5 million tonnes in 2006.