Overview
Starting FY2021 below US$1,900/ tonne, zinc prices started soaring and touched the US$2,800/tonne mark. This can be attributed to the disruption of global zinc mine supply affected by the pandemic. Mine closures in Peru and Mexico in particular have played a major role in the recovery of prices.
But as restrictions started to ease and the world resumed operations, both demand and supply started to align with pre-COVID levels in Q3 and Q4 of FY2021. This helped the players maintain a steady price of around US$2,700/tonne. At a supply level, refined zinc metal production increased by 1.2% y-o-y to 13.64 mt in 2020 with a 2.9% growth.
Market drivers
Despite the effects of the pandemic, governments and institutions are likely to continue their efforts to try and support economies. As a result, zinc consumption is expected to grow by 4%, marking the first annual increase in zinc consumption in the past three years.
In the Indian construction sector, to help mitigate corrosion loss, Corrosion Protection Rebars have recently been adopted by few domestic rebar manufacturers, who are working in collaboration with the International Zinc Association (IZA) to bring Continuous Galvanized Rebar Plant to India. Indian Railways, considering the safety and longevity of rail tracks, are working on different mechanisms to protect the web area of rail from corrosion. Zinc Thermal Metallisation which has been considered globally as the best method to prevent corrosion of railway tracks, is expected to soon adapted in India.
Galvanising has been the key driving force of zinc demand mainly in construction and infrastructure, and automobiles. The `1,18,101 lakh crore allotment for the Ministry of Road Transport and Highways will boost zinc consumption, led by the development of road crash barriers and galvanised steel bridges. Also the 100% electrification of Broad-Gauge Railway routes are to be completed by December, 2023, which will further contribute towards zinc demand in India, led by electrification in railways.
Products and customers
Hindustan Zinc Limited (HZL) is the largest primary zinc producer in India, with an expected 77% market share in 2021. Around 70% of the refined zinc produced by HZL’s smelters is sold in the domestic market, and the rest is being exported to South-East Asian and Middle Eastern markets. Over 70% of the Indian zinc demand comes from galvanising steel, predominantly used in the construction and infrastructure sectors. HZL also produces Continuous Galvanizing Grade (CGG), EPG (Electro Plating Grade) and two grades of zinc for use in die-casting alloys. The Company is working closely with its customers to increase the proportion of valueadded products (VAP) in its zinc portfolio. It strives to increase the supply of VAP to 25% of total zinc sales in FY2022, from 16% in FY2021.
Overview
Rising from the pandemic-induced stupor, sustained rally in base metals increased lead’s value by one-third from its low point, before sliding only a little at the end of the year. There has been a significant drawdown in concentrate stocks in 2020. This helped global primary refined lead output to increase by 1% despite an 8% decrease in mine production.
Demand for lead acid batteries, which drive more than 80% demand for lead, was muted for Q1 due to the lockdown, but we witnessed a marginal improvement in the lead acid battery (LAB) segment, driven by the upsurge in aftermarket demand for replacement of old and discharged products. As per internal estimates, the LAB segment’s revenue was approximately `33,000 crore in FY2021, driven by an aftermarket volume growth of 14% in two-wheelers and 6% in other vehicular batteries.
Market drivers
Automotive original equipment is impacted in the short and medium term, although heightened replacement demand provided an effect offset; industrial batteries hold opportunities for growth, although motive power will be hit by reduced goods handling while global trade recovers, but stationary batteries have proved their strength for stand-by power and hold excellent prospects for future energy storage systems.
Few key factors that could affect the lead markets in 2022 are:
This is based on the base case assumption of rollout of vaccination programmes for COVID-19 which will bring the effects under control.
Products and customers
India’s refined lead market is about 1.1 mt, including both primary and secondary markets. The primary lead market, which is approximately 280 kt in size, remained stagnant in 2020. Vedanta has increased its domestic share in the primary market by 17% in Q3 & Q4 of FY2021. We expect to close at the same rate and 85% of our production will be consumed by the domestic market and the rest will be exported to the South-East Asian market. Next year, we are expecting to increase our sales by 3-4% through new customer acquisition enabled by our e-commerce platform (Evolve), and by introducing lead alloys in our product portfolio. In the current year, a total of 38 new customers have been added through conventional and digital channels.
Overview
Silver recorded a sterling performance in FY2021. Silver capitalised on its ‘safe haven’ appeal in March and April; and subsequently was bolstered by growing industrial demand. Reaching a seven-year high in August of US$28.32 per ounce after sinking to an 11-year-low of US$11.59, highlights silver’s ability to outperform gold. From its lowest to highest point in 2020, silver price grew 137%, vis-à-vis gold’s 38%.
Market drivers
FY2022 is forecast to see a strong recovery, and the outlook beyond 2021 is promising as the Indian economy improves, coupled with rising consumer confidence and as the market increasingly embraces purer sterling silver jewellery.
With the onset of the COVID-19 pandemic, the market saw an increasing number of countries introduce accommodative monetary policies. This has helped drive down real interest rates and, together with a rotation in favour of safe-haven assets, encouraged investors to buy into silver and other precious metals.
A bullish mood for silver has been witnessed in the opening weeks of 2021. In early February, a jump in retail investor appetite for silver, spurred on by social media platforms, pushed the price to an 8-year high of US$31.10, while the gold: silver ratio fell to 62, a 7-year low.
Going forward, the outlook for the silver price in remaining 2021 and FY2022 remains exceptionally encouraging and we expect silver to comfortably outperform gold this year, with silver demand forecast expected to rise by 11% in FY2022.
Products and customers
Hindustan Zinc is India’s only primary silver producer and ranks 6th globally among the top silver producing companies. Exclusively catering to the domestic market, HZL’s production is consumed by the industrial (electrical contacts, solder and alloys, and pharmaceuticals), jewellery and silverware sectors. Last year, the Company started spot sales of silver through an e-auction to reduce manual intervention, providing equal opportunity to all buyers to compete, while ensuring complete price transparency during the process.
Overview
The oil price war between Saudi Arabia and Russia during the height of the first virus wave in April 2020 triggered WTI oil futures to move into negative territory for the first time in the commodity’s history. The shift in position by Saudi Arabia and decisive action by OPEC and its allies ensured that oil prices not only bounced back to more ‘reasonable’ levels, but the price rebound was also durable. Production cuts were successful, with Brent Crude back above US$70 a barrel and WTI not far behind.
Market drivers
The oil market suffered a historic shock in CY2020, because of the pandemic-induced socio-economic crisis. However, there is room for relief as the contraction in the global economy in CY2020 has been restricted after the better-thanexpected actual performance by key economies in H2 CY2020. Additional stimulus measures in the US and an accelerating recovery in Asian economies are expected to push oil demand further.
World oil demand in CY2020 shows a contraction of 9.6 mb/d, to stand at 90.4 mb/d. OECD oil demand contracted by 5.6 mb/d, while non-OECD demand declined by 4 mb/d. For 2021, world oil demand is expected to stand at 96.3 mb/d. India is the world’s third largest oil consumer, the fourth largest refiner, and a net exporter of refined products. The country currently meets 84% of its oil consumption and 54% of its gas consumption through imports.
The Government of India aims to increase the share of natural gas in the country’s energy mix to 15% by 2030, from the current 6%. To improve energy security, the government has prioritised the reduction of oil and gas imports, increasing domestic upstream activities, diversifying its supply sources, and increasing Indian investments in overseas oil fields.
Vedanta has a world-class resource base, with 58 blocks in India. With a strengthened growth pipeline in exploration and development, the Company is well positioned to contribute significantly more to the country’s domestic crude oil production in the coming years.
Products and customers
Vedanta is the largest private sector producer of crude oil in India. The Company’s crude is sold to hydrocarbon refineries and our natural gas is used by the fertiliser industry and the city gas sector in India.
Overview
India’s aluminium demand (Q1 & Q2 FY2021) remained muted following the COVID-induced lockdown. However, export demand (~50-55% of total primary aluminium production) remained robust. Domestic demand partially recovered in Q2, and exports improved marginally.
Imports declined 28%, adversely impacted by lower domestic demand in Q1. However, domestic demand rebounded in September 2020 quarter, driven by strong demand from the auto segment and higher extrusion demand. After declining y-o-y for six consecutive months (March to August 2020) imports grew by 27.8%, 8.8% and 46.6% y-o-y in September and October and November 2020, respectively. This trend reflected a strong revival in domestic demand. The industry’s capacity utilisation rate dipped to 83% in the Q1FY2021. However, the utilisation rate improved to 86% in Q2, and reached pre-COVID level (93%) in the December 2020 quarter.
Market drivers
The long-term fundamentals of the Indian economy continue to be sound. The country’s market is likely to have robust growth, supported primarily by increased industrial activity and government focus on infrastructure sector and domestic manufacturing in the country.
Several government initiatives like Aatmanirbhar Bharat, Make in India, Production Linked Incentive (PLI) for domestic manufacturing, National Infrastructure Pipeline and National Rail Plan have been rolled out by the Government of India. These tailwinds will help the economy recover faster in the coming quarters. Taking these macro drivers into cognizance, Vedanta continues to expand its value-added product portfolio in line with the evolving market demand.
Products and customers
With an annual installed capacity of 2.3 million tonnes, Vedanta is India’s largest primary aluminium producer. It leads the segment with a domestic market share of ~47% among Indian primary producers.
Vedanta’s product portfolio includes aluminium ingots, primary foundry alloys, wire rods, billets, slabs, and rolled products. These products cater to varied industries globally such as power, transportation, construction & packaging to name a few. As much as 37% of Vedanta’s total aluminium sales globally were high quality value-added products.
Our major focus area is the domestic market. In FY2021, domestic sales volume was marginally improved by ~1% y-o-y. The sales growth was bolstered by increased demand in the electrical, construction & transport sectors. Value-added products accounted for ~60% of the domestic sales. Vedanta’s international sales volume increased by ~8% y-o-y to 1.36 million tonnes.
Overview
India is the third largest electricity producer in the world. The electricity generation target for conventional sources for FY2021 has been fixed at 1,330 billion units (BU), 6.33% higher y-o-y . Between FY2016 and FY2019, the country’s electricity generation grew at 3% CAGR, driven by government initiatives and schemes to increase rural electrification and provide round-the-clock power supply.
Market drivers
India’s power demand is likely to touch 1894.70 TWh by FY2022 (7% CAGR) from 2007 baseline, driven predominantly by multiple factors (expansion in industrial activities, growing population, rising per capita income, policy support and increasing electricity penetration).
The Government of India and state governments have also been supportive of the growth in the power sector, delicensing the electrical machinery industry and allowing 100% Foreign Direct Investment (FDI). In addition, policy support (Saubhagya, IPDS, DDUGJY, UJALA, R-APDRP, UDAY, NIP, and many others) have provided much-needed impetus to the sector. The country’s power sector is likely to attract an investment of US$128.24 billion-US$135.37 billion between FY2019 and FY2023.
Energy sector projects accounted for the highest share (24%) in the US$1.4 trillion NIP between FY2020 and FY2025 (Source: Economic Survey). The Government of India has recently opened the coal sector for commercial mining, which is expected to ease any coal availability hassles.
As of February 2021, India had total
installed capacity of 379 GW (379.130
GW), of which thermal constituted
233 GW, nuclear 7 GW, hydro 46 GW
and renewables at
f91 GW.
Vedanta’s power portfolio is well positioned to capitalise on India’s growing demand for power.
Products and customers
Vedanta Power business operates over 9 GW power portfolio in India. Of Vedanta’s power portfolio in Aluminium and Power business, 37% is used for commercial power while 63% is meant for captive use. The power generated for commercial purposes is backed by long-term Power Purchase Agreements with state distribution companies such as Punjab, Tamil Nadu, Kerala, Chhattisgarh, and Odisha.
Overview
Karnataka’s iron ore industry remained subdued in Q1FY2020, as the demand remained tepid, and the utilisation level of dependent steel units was less than 50%. There was gradual improvement from the demand side in Q2 with relaxation of lockdown guidelines. This resulted in stable prices in Q2 vis-à-vis Q1, which was volatile because of uncertainties. The Q3 and Q4 were driven by strong demand from the steel market, clearly indicating market recovery. International market prices remained robust throughout the year post market recovery in May 2020.
Market drivers
Iron ore prices are expected to stay high in 2021. The primary drivers of high iron ore prices are expected to hold throughout 2021. Although Vale has announced plans to expand its capacity significantly, much of the resulting output is not expected to reach seaborne markets for at least two to three years. BHP and Rio Tinto are bringing new mines to production in the Pilbara region of Western Australia, but much of the resulting output will substitute for depleting mines in the same area. Consequently, overall output growth is not expected to occur at a pace which reduces prices significantly.
A range of factors could put downward pressure on prices over the coming months. Some price falls are expected, as Vale’s Brazilian operations steadily return to output levels prior to the January 2019 Brumadinho dam collapse. Overall, Brazilian output is expected to recover to normal levels by the end of 2021. Chinese government’s stimulus measures could also be phased down in the second half of 2021, reducing the imperative for rapid purchases of iron ore to meet production schedules and allowing some build-up of iron ore at ports.
Products and customers
Iron ore, a key ingredient in steelmaking, is used in the construction, infrastructure, and automotive sectors. Our iron ore mining operations ceased in Goa from March 2018, pursuant to the Supreme Court order. Meanwhile, the permitted mining capacity at Karnataka has recently been increased from the previous 4.5 million tonnes in FY2020 to 5.6 million tonnes.
Overview
India’s steel industry saw a sharp demand plunge after lockdowns disrupted economic activities globally. As it was gradually lifted, steel demand began to rise. As construction activity returned to pre-COVID levels, the industry became bullish on steel price. Strong domestic demand, along with good exports, aided the steel industry’s production and sales growth in Q4 2020-21 sequentially. Revenues of steel companies improved (vis-à-vis FY2020) on higher realisation and rising demand, led by a recovery in capital expenditure of states, auto production, white goods production, and construction activity.
Market drivers
Global steel demand is expected to grow by 5-7% in CY2021. The demand from China will remain firm, owing to government-led infrastructure boost, particularly in railways and airports. Globally, a lower base and active initiatives for economic revival by governments will aid recovery of steel demand to 5-7% in CY2021.
FY2022 will see a steel demand growth of 10-12% with infrastructure and housing as key drivers. The Union Budget 2021-22 provides a major boost to the infrastructure sector with high focus on developing highways and economic corridors. Some of the flagship corridors and important projects would see considerable activity from 2021- 24 and is expected to create major steel demand in the country for the next 3-4 years. The robust demand forecast will aid domestic producers in increasing their capacity utilisation and expediting growth projects.
Infrastructure, which accounts for 25-30% of domestic demand, will see the government push to steer the economy back with expectations of 10-12% growth next year. However, a large part of this would be on the back of ongoing projects as new awarding remains lukewarm.
Auto production is expected to revive next year with forecasts of double-digit growth. This shall enable around 11% growth in FY2022, even as volumes remain lower than FY2019 levels, implying a ~5% CAGR.
Products and customers
Vedanta completed the acquisition of Electrosteel Steels Limited (ESL), along with its integrated steel plant on June 4, 2018. ESL primarily caters to the construction, infrastructure, and automotive sectors in India, with its wire rod, TMT, and DI pipe products..
Overview
COVID-19 triggered a shutdown of copper mines in 2020, disrupting global production. The International Copper Study Group (ICSG) estimates that mine production contracted by 1% in the first nine months of 2020. This is because mine supply is largely concentrated in Latin America, a region hard-hit by the pandemic.
Despite temporary shutdowns copper prices recovered gradually and in Q4FY2021, three-month copper futures on the LME touched US$8,238 per tonne. Although a rebound in the US dollar has dented copper’s price rise, it enjoyed an explosive first week in 2021, as investors seemed optimistic about a vaccine-powered global economic recovery.
On the supply side, India faced a crunch in the availability of refined copper due to Vedanta’s Tuticorin smelter closure.
Market drivers
Copper consumption in India and China is expected to increase by 19% and 0.9%, respectively in CY2021. With manufacturing industries in both the countries ramping up production volumes following the easing of lockdown restrictions, copper consumption is set to rise.
India’s biggest consumption engine continues to be its burgeoning population (which is predominantly young) with growing disposable income, fast urbanisation, and availability of a wide range of financial services to the last-mile citizen. Growing electric vehicles market supported by government measures will further drive copper consumption.
Copper demand fundamentals in the last quarter of CY2020 were bolstered by developments around the vaccine rollout. On a positive note, manufacturing activity demonstrated resilience during this period, amid a weak economic environment.
On the supply side in 2021, Chinese smelters remain strong, and copper commenced the year on a positive note with prices rallying to hit their highest level in eight years in early January. Due to the easing of lockdown restrictions around the world, an increasing trend is observed in smelter production in 2021.
Our ability to take advantage of these opportunities is largely dependent on the re-opening of our smelter at Tuticorin.
Products and customers
Refined copper is predominantly used in the manufacture of cables, transformers and motors as well as castings and alloy-based products. The Tuticorin smelter closure affected our production in India. We have produced 101 kt of cathode in FY2021.
