Vedanta Resources expects supply constraints to sustain zinc prices

By Chris Mfula

LUSAKA (Reuters) - Zinc prices are expected remain buoyant in the coming years after reaching their highest levels in a decade because of a shortfall caused by years of underinvestment, the founder and chairman of Vedanta Resources said on Wednesday.

A rally in zinc prices to their highest since 2007 has helped to boost the overall profits of Vedanta, which has zinc projects in India, South Africa and Namibia.

Vedanta Chairman Anil Agarwal said that demand for zinc and prices of the metal would remain high because there were only three major producers in the world.

"It is very difficult to find zinc deposits," Agarwal told Reuters during his visit to Zambia.

Agarwal said that steelmakers were increasingly using zinc to galvanise the construction metal against rust.

The global zinc market deficit narrowed to 48,600 tonnes in December from a revised deficit of 65,700 tonnes in November, data from the International Lead and Zinc Study Group (ILZSG) showed on Feb. 20.

Zinc demand will remain high because it is also being used increasingly in other areas, such as the pharmaceuticals industry, Agarwal said.

"I see zinc (is still) going to be a very important material," Agarwal said.

Vedanta could accelerate expansion of its African zinc operations to take advantage of strong prices, it said in February.

Agarwal owns a 21 percent stake in Anglo-American Corporation in South Africa and said he expects the company to increase investment in its domestic market after Cyril Ramaphosa's election as the country's new president.

Ramaphosa's election is expected to rekindle investor confidence in Africa's biggest economy, Agarwal said.

"There is a lot of positiveness about him and I am sure, with time, you will see whole thing will turn around, where everybody who was running away from South Africa will come back," he said.

(Reporting by Chris Mfula; Editing by David Goodman)