The Hindu Business Line : Rising zinc prices cause concern to steel units

The zinc zing!
Zinc futures prices in the range of Rs 185-195 per kg
When first launched in MCX, was traded at Rs 120 per kg
In recent past traded at lifetime high of Rs 207.65 per kg

Mumbai , Nov. 16

Rising zinc prices have become a cause for concern for domestic steel processors who have begun to demand some policy initiatives from the Union Government on its prices.

Prices are currently trading in the range of Rs 185-195 a kg in the futures market. Zinc prices traded at Rs 120 per kg when the contract was first launched on the Multi Commodity Exchange in March.

The metal traded at a record high of Rs 207.65 per kg in the futures market in the recent past.

New highs

Prices of zinc on the London Metals Exchange (LME) in the past year have reached new highs, even breaching the psychological $4,000 - a-tonne-mark.

LME sets benchmark prices in base metals. Zinc prices in the world traded at an all time high of $ 4,580 a tonne last week on worries of depleting warehoused stocks.

Currently, the metal is trading over $ 4,000 a tonne on the LME. Price escalation is mainly due to fund activity in the metal.

Funds speculate on changes in demand and supply conditions.

Continued buoyancy in the global steel sector, driven primarily by China, has helped keep the demand steady to moving northward.

The total world consumption of zinc, the steel processing industry for galvanised steel consumes 50 per cent.

Depleting stocks

LME warehoused stocks across the globe are said to be depleting over the past one year to lifetime low inventory levels.

Stocks in the LME warehouses were at an all-time low of 93,025 tonnes down by 550 tonnes on Thursday.

Capacity additions are being carried out but it will take some more time before they come online, according to an analyst.

"Throughout the next year till the first half of 2008, we expect a supply deficit in the metal", said Mr Tejas Shah of UTISEC Commodities Ltd.

`No justification'

"High prices have no fundamental justification as there is no change in the cost of production," said Mr Nitin Johari, CFO of Bhushan Steel, adding that production cost of zinc was a mere $600 a tonne.

Importers of galvanised steel have begun to consider whether to defer placement of orders in the hope that prices will correct.

Some secondary steel processors are considering a raise in the price of galvanised steel products.

The price increase may range between Rs 1,500-2,000 a tonne.

Bhushan Steel hiked prices of galvanised steel by Rs 1,500, while that of galume by Rs 1,000-1,200 where zinc is a 50 per cent component, same as aluminum in early November.

Mining companies are posting record profits taking advantage from the price spurt.

Net income of Vedanta Resources Plc rose to $ 447.6 million, or 144.7 cents a share, from $ 107.9 million, or 37.3 cents, a year earlier, the company said in an emailed statement to Bloomberg.