Domestic majors hedging zinc contracts on LME

Shyam G. Menon
Latha Venkatraman

Facing problems

JSW Steel

has got RBI permission to hedge on LME.

Uttam Galva

Steels Ltd has begun to take part in LME futures.

Zinc prices

hiked seven times this month

Mumbai, April 27

Zooming zinc prices are hurting domestic manufacturers of galvanised steel.

At least one of them said finished product prices would need to be revisited if the price of the critical raw material continues its northward journey.

Zinc is used as an anti-corrosive coating material for galvanised steel.

The rising trend in zinc price has forced Indian steel companies to seek hedging on the London Metal Exchange. JSW Steel, with sizeable galvanised steel business (7,82,000 tonnes produced in FY06), has permission from the Reserve Bank of India to hedge but has not done so yet.

Correction likely

"Zinc prices have been very volatile. We believe there would be some correction,'' said Mr Sheshagiri Rao, Director (Finance), JSW Steel. Steel companies have not been able to adequately pass on the higher input cost; there is resistance from customers. Mr Rao said the ongoing zinc price hikes were stiff and steel companies would need to re-examine galvanised steel prices. JSW Steel has a production target of 8,50,000 tonnes of galvanised coils for the current fiscal.

Tata Steel's view on zinc price escalation as well as hedging at LME could not be had.

Commences hedging

Uttam Galva Steels Ltd, another galvanised steel manufacturer, has commenced hedging on LME. "We are looking at various hedging products. There are multiple structures for hedging,'' said Mr Ankit Miglani, Director, Uttam Galva Steels. At present, the company's annual zinc requirement of 25,000 tonnes is met through imports (75 per cent) and domestic purchases. With its steel capacities rising, Uttam Galva's requirement of zinc would double next fiscal, he said.

On Wednesday, Hindustan Zinc Ltd hiked prices by Rs 10,200 a tonne. It took special grade zinc price to Rs 1,82,700. The price increase, seventh so far in April, was also the stiffest of the month outplaying the Rs 9,400 hike a week ago. LME cash price for zinc was $2601 at end-March and $3405 at last close, an increase of $ 804.

Related Stories:
HZL hikes prices again
Zinc price hike in line with global trend: HZL
Uttam Galva hikes steel prices

(This article was published in the Business Line print edition dated April 28, 2006)
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