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Hindustan Zinc looks to gain from PM Modi’s infrastructure push

Bloomberg Mumbai | Updated on January 17, 2020 Published on January 17, 2020

Sunil Duggal, CEO of Hindustan Zinc (File photo)

A push to modernise Asia’s oldest railway network could help spur demand for zinc, according to India’s sole producer.

Prime Minister Narendra Modi has outlined a plan to spend about $1.5 trillion to upgrade and build infrastructure over the next five years to shore up economic growth, boosting the outlook for zinc, used to galvanise steel and prevent corrosion. There are early signs of a possible pick up: Indian Railways is setting targets to lay zinc-coated rails and has fitted stations with galvanised roofs to replace asbestos sheets, according to Hindustan Zinc Ltd's Chief Executive Officer Sunil Duggal.

Asia’s top zinc producer by market capitalisation has been campaigning for Indian Railways to increase their use of galvanised steel in its rail lines, although the material is also used in industries from construction to cars. The country produces about 100 million tons of steel every year, but less than 10 per cent of it is coated with zinc, resulting in corrosion-related costs amounting to about 4 per cent to 5 per cent of India’s gross domestic product every year, Duggal said.

“Galvanisation is like an investment that not only enhances the life of infrastructure and provides safety but also adds to the GDP of country by reducing scrap and frequent expenditure on replacements,” he said in an interview. A 2016 study by the National Association of Corrosion Engineers estimates corrosion cost India $70 billion, which could have been avoided had structures been coated with zinc.

The Railway Ministry expects to buy about 1.5 million tons of tracks in the year ending March. Indian Railways, the monopoly operator, has about 18 million tons of steel assets including rail lines and material for sheds and stations, which Duggal says should be protected from corrosion to ensure its longevity and sustainability.

Shares of Hindustan Zinc added as much as 1.2 per cent in Mumbai on Friday, rising for a third day, while the benchmark S&P BSE Sensex traded 0.2 per cent higher.

Replacement expenditure

The demand for primary zinc in India depends largely on the growth of the steel market as it accounts for 70 per cent of the total consumption. India’s per capita consumption of zinc is only 30 per cent of the world average of 2 kilogram per person, the Australian government said in a quarterly report.

“Growth in zinc consumption is fundamentally to be supported by the issues of rust and corrosion in steel,” said Urvisha Jagasheth, an analyst at Care Ratings Ltd. “In the long run, galvanising would definitely be beneficial, outweighing the costs and cost efficiencies would be realised because the corrosion and rust would be minimised.”

Hindustan Zinc’s output was 6,96,000 tons in the year ended March 31. India’s consumption may rise more than 3 per cent to about 7,95,000 tons this financial year, according to Care, accounting for about 5 per cent of global demand.

Published on January 17, 2020
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