amidst challenges

Overview

It was a tough year for Zinc generally with LME prices on a falling streak for the majority of the year. During the financial year, LME prices fell by 38% post April 2019. The average cash settlement price was ~US$2,402/t during the year compared to last year’s $2,745/t. With the COVID-19 pandemic and concerns over global growth, the market is not expected to return to normal soon. Even so, absolute downside in Zinc looks limited from current levels particularly with so much of global production becoming uneconomic at current levels.

Global Scenario

The trade war between the US and China began in 2018, when US President Donald Trump imposed tariffs on goods imported from China. The resulting trade uncertainties and growing protectionism between the world’s two major economies impacted base metal prices globally. In December 2019, the ‘Phase I’ of the trade agreement was signed. The market responded positively to the news. The LME prices in the base metals complex strengthened somewhat, but the news of the pandemic outbreak led to its downturn again.

In 2019, most of the smelters in China were shut down due to environmental concerns, since then many have returned online and the rest are expected to be back in operation later in 2020. Nevertheless, even with increased production in China, globally mine production is expected to contract by 3-4% in CY2020.

Countries like Peru, Canada, Mexico and Bolivia, which contribute roughly 20% of global mine production went in to lockdown and miners were forced to suspend operations. Consistent low LME pricing will mean number of mines will become uneconomic and will be forced to close. This shift will certainly provide a natural buffer to the weaker demand trends being seen; nevertheless, market challenges will persist for 2020 as uncertainty over underlying demand trends persist.

Indian Market and Opportunities

Every year, India loses approximately ~3-4% of GDP due to corrosion and Indian industries have now slowly started recognising the fact, leading them to seek solutions. In the construction sector, the need for corrosion protection rebars has recently been picked by few domestic rebar manufacturers, who are collaborating with the International Zinc Association (IZA) to bring Continuous Galvanized Rebar Plant in India.

Indian Railways, considering safety and longevity of rail tracks are working on different mechanisms to protect the web area of rail from corrosion. Railway electrification has been growing rapidly. Encouragingly, Indian railways have set an ambitious target to electrify the complete rail route in the next few years, which will bolster India’s zinc demand. Zinc-based fertilisers present other avenues which are yet to be explored. India as of now consume less than 2% of zinc-based fertiliser, which presents a lot of opportunities and demand in the sector.

Products and Customers

Hindustan Zinc is the largest primary zinc producer in India, with an expected 78% market share in 2020. Around 72% of the refined zinc produced by our smelters is sold in the domestic market, and the rest is being exported to South-East Asian and the Middle East. Over 65% of zinc demand comes from galvanising steel, predominantly used in the construction and infrastructure sectors. We also produce Continuous Galvanising Grade (CGG), EPG (Electro Platting Grade) and two grades of zinc for use in die-casting alloys. We are working closely with our customers and to strengthen our zinc product portfolio in terms of value-added products (VAP). Our focus is to increase the supply of VAP to 25% of total zinc sales in FY2021, from 19% in FY2020.

HZL to Launch E-commerce Platform

Lately, with the internet revolution, e-commerce platforms are turning out to be the new place for buyers to buy from their home and seller to reach widespread customers. HZL is planning to adapt to times by launching ‘e-volve’- an e-commerce platform, which will make HZL the first producer in the non-ferrous industry to sell the metal on e-commerce portal. It will provide our customers with real-time pricing and seamless ‘click-buy’ facility for all the metals in our portfolio (zinc, lead, and silver). This will reduce manual intervention and enhance governance by providing transparent and real-time INR pricing options to end-users.