Hindustan Zinc, the country’s largest producer of the base metal, is aiming at 55 per cent of its turnover to come from overseas markets, up from over 15 per cent now, once its capacity expansion plan is in place by 2010. The company also expects an early rise in the zinc price.
The base metal, which is largely used for galvanisation of steel, has seen about a 28 per cent drop in spot prices this year as demand for the ferrous metal declined due to an economic slowdown in Western markets and China. The current spot price of of the metal at $1,770 a tonne is about 57 per cent lower from the high of $4,130 a tonne in January 2007.
The company, which is one of the world’s lowest-cost producers, is using the downside in the zinc price as an opportunity to expand as it expects prices to catch up from the first or the second quarter of the next financial year.
“We expect the excess of supply in the market to get exhausted in the next three to six months as high-cost production is being shut down,” said Mahendra Singh Mehta, chief executive officer, Hindustan Zinc. “Once that is over, the prices should start shooting up from the first or the second quarter of the next financial year,” he added.
However, most of the industry analysts do not expect such an early surge in the commodity prices. “The prices should start catching up some time in 2010, when the global economy picks up,” said Sanjay Jain, an analyst at a Mumbai-based brokerage.
The company’s cost of production is $635 a tonne before the royalty payout, largely due to the low cost of mining ore at the Rampura Agucha mine.
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The company is expanding its zinc and lead production capacity to 1.07 million tonnes per annum with an investment of Rs 3,600 crore. Its balance sheet is debt-free and the cash book is about Rs 8,400 crore.
According to estimates, zinc consumption is growing by 3 to 3.5 per cent globally, driven by demand in Asian countries such as India and China. Production of zinc is also increasing by 2.5 to 3 per cent annually.