Zinc Rally Set to Last as Producer Sees Best Price in Decade

Updated on
  • Hindustan Zinc’s Duggal expects metal to climb to $3,000/ton
  • Supplies to remain weak in 2017 as mine closures continue

The rally in zinc prices has the potential to jump this year to levels not seen in a decade as demand continues to outstrip supply amid mine output disruptions, according to Hindustan Zinc Ltd., Asia’s biggest producer by market value.

Prices may rise to about $3,000 a metric ton on the London Metal Exchange in the next couple of quarters, Sunil Duggal, chief executive officer of the Vedanta Ltd. unit, said in a phone interview from Udaipur in Rajasthan. The last time prices hit that level was in 2007, according to data compiled by Bloomberg.

Zinc, used to galvanize steel, has spearheaded an advance in base metals, gaining about 23 percent in the past year, as production cuts by Glencore Plc and other suppliers helped spur shortages. Higher prices and an increase in output saw Hindustan Zinc on Thursday report an 81 percent increase in net income to 18.8 billion rupees ($292 million) in the three months to June.

Even after a 60 percent increase in prices in 2016 that made zinc the year’s best-performing industrial metal, miners in China have been struggling to make up for falling global output seen after the closure of large mines in Australia and Ireland and a move by Glencore to suspend a portion of its production in late 2015.

Lack of visibility on Glencore restarting its stalled operations should also support prices, Duggal said. The Indian company, which has seen its shares surging 44 percent in the past year, has five zinc and lead mines in its home state of Rajasthan, with total reserves of 390 million tons.

The global refined zinc market was in deficit in May with consumption of 1.15 million tons exceeding production of 1.108 million tons, the International Lead and Zinc Study Group said on July 17. The group expects demand to outpace supply by 226,000 tons this year.

The metal climbed 1.3 percent to $2,762 a ton in London on Friday after dropping last month to the lowest since November. Concerns over demand growth in China and the U.S. saw the rally losing momentum in June before resuming the uptrend.

Hindustan Zinc is targeting a zinc and lead mined metal capacity of 1.2 million tons by 2020, and its parent has accelerated investments in its Gamsberg zinc project in South Africa, which is expected to produce its first ore in mid-2018.

(Updates price in seventh paragraph.)
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