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Suresh P. Iyengar

Mumbai, Nov. 4 With new zinc refineries going on stream across the globe, prices are expected to fall in the short to medium term.

Zinc supply has trailed demand in the last two years, but the shortfall may narrow down considerably by new capacity additions.

Refined zinc production in 2008 is expected to increase 5 per cent to 11.8 million tonnes (mt), with new capacities coming up in China and Canada.

China’s production in September was up 24 per cent to 3.75 lakh tonnes, year-on-year, while annualised production was scaled to a new record of 4.106 mt.

Cumulative global production in the first eight months of 2007 was up 22.4 per cent at 1.810 mt.

In 2008, world mine production is expected to increase by 6 per cent with Ozernoye (capacity of 3 lakh tonnes per annum or tpa) in the Russian Federation scheduled to start production. Canadian producer Breakwater Resource’s zinc mine, which re-started production last year, is expected to produce around 44,750 tpa of zinc concentrates.

In India, Hindustan Zinc of Vedanta Group is set to raise capacity to 6.71 lakh tpa from 4 lakh tpa by end of FY’08. China, one of the largest consumers, became a net exporter of refined zinc in June after being a net importer till May.

A large proportion of refined zinc production rise is expected to come from new smelters in China and India.

Zinc consumption is forecast to grow by 3 per cent in 2008 to 11.7 mt. Increased demand for galvanised steel and zinc based alloys will be an important consumption driver.

Half of the total refined zinc production is consumed by the construction sector and a further 25 per cent by transport industries, including automobile manufacturing sector.

Since early this year, there has been a sharp decline in zinc prices mainly due to higher Chinese exports.

However, China’s exports have come down after export incentives for base metals were withdrawn.

The three month forward LME prices declined from $4170 levels to $2680 levels, a drop of 56 per cent.

From August, 2007, LME cash prices have fallen by nearly $500 a tonne.

“We expect prices in the short to medium term to come down. The strategy on MCX should be to sell November contract at about Rs 112-117, targeting Rs 100 and Rs 80. Sell December at about Rs 114-120 with a target of Rs 105 and Rs 85,” said Mr Sushil Sinha, Regional Head, Karvy Comtrade.

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