Adding value, strengthening demand

Overview

Zinc metal is used in a variety of applications across different industries due to its wide range of chemical, physical and electro chemical properties, that enable its use in galvanisation as an effective corrosion resistance agent to steel substrates. The largest application of zinc is in galvanisation that accounts for 60% of the global zinc first-uses. Additionally, zinc as a metal, alloys readily with other metals, such as aluminium, copper and magnesium, thereby facilitating its use in die-casting alloys, which constitutes 13% of the global zinc consumption, followed by brass at 11%, and oxide and chemicals at 9%. In terms of the end-use market of zinc, the construction sector is the largest consumer at 50%, followed by the transport sector at 21% while infrastructure constitutes 16% of the total global zinc consumption.

Global Demand & Supply

Global demand of zinc witnessed contraction in CY 2022, decreasing by 3.3% to 13.6 Mt, largely due to the fall in Chinese demand. At supply level, the refined zinc metal production came down by 2.9%, as several smelters were put into care and maintenance across the world owing to the increase in energy prices. The global mined zinc production is expected to grow stronger during the CY 2023-26 period on account of the ramp-up of new mine projects. Production is expected to grow by 2.5% to 13.8 Mt in CY 2023 and reach 14.8 Mt by CY 2025.

FY 2022-23 started well with zinc prices around US$ 4,000/t. Price volatility due to the combined impact of the Russia-Ukraine conflict, lockdown announced in China, and the US GDP contraction, pushed zinc prices to around US$ 4,400/t for most of April 2022 and closed the month at US$ 4,100/t. In the month of May, prices went down to US$ 3,499/t over concerns about an economic slowdown in the US and China. Prices again rebounded above US$ 4,000/t, driven by increased expectation of a stimulus from the Chinese government to support growth in order to offset the impact of the COVID-19 pandemic. However, during Q3 FY 2022-23, the negative sentiment of the market pushed prices down at the London Metal Exchange (LME) in October 2022, touching US$ 2,682/t in November – the lowest since February 2021. With the sudden easing of China’s zero COVID policy at the end of CY 2022, and the prospect of rebounding Chinese demand, investors’ faith in base metals was restored. This gave a much-needed boost and prices rose above US$ 3,400/t in January 2023, with a monthly average of US$ 3,289/t. However, the trend did not last for long and prices corrected themselves to US$ 2,956/t in March 2023.

The global zinc warehouse stocks also fell during this period due to supply constraints. The total tonnage of zinc in the Shanghai Futures Exchange (SHFE) warehouses fell to 20 kt at the end of December 2022 and settled at 97 kt by the end of March 2023, from 176 kt in April 2022. Zinc stocks at the LME warehouses stood at 45 kt at the end of the March 2023, down from 140 kt in April 2022.

We have been accredited with REACH certification for our SHG Zinc in October 2022, which has opened up opportunities for us in European market. REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) is a regulation of the European Union, adopted to improve the protection of human health and the environment. To comply with the regulation, companies must identify and manage the risks linked to the substances they manufacture and market in the EU. We have successfully completed the registration and already despatched 14 kt in FY 2022-23 and look forward to increasing the same in FY 2023-24.

Indian Demand and Opportunity

The Indian economic environment has remained optimistic. The same was reflected by the S&P Global Manufacturing PMI which stood at 56.4 in March 2023 as compared to 54.7 in April 2022, reflecting expansion in the manufacturing sector. This highlighted a nineteenth successive monthly improvement in operating conditions globally. The Indian automobile industry is on a growth trajectory, recording a 13% increase in production that touched 26 mn units from April 2022 to March 2023 compared to previous fiscal. Passenger vehicle sales stood at 39 lakh units, marking a growth of 27% over the same period in the previous year.

The domestic production of finished steel went up by 6.8% to 121.3 Mt from April 2022 to March 2023, as against the previous year. Consumption in domestic market during the same period stood at 119.2 Mt, up by 12.7%. The total net finished steel exports till March 2023 stood at 6.7 Mt, down by 50.2% over the same period in the previous financial year on account of export duty levy.

The overall domestic demand for primary zinc in this financial year has seen a growth rate of 3.8% compared to last year, nearing pre-COVID levels. It is expected to further grow by 4% next year.

The major drivers for zinc demand in the domestic market are the coated steel industry, along with infrastructure, construction, railways, and automobile industries. India is focussing on achieving 300 Mt annual steel production by 2030, aided by the production linked incentive (PLI) scheme of the Government of India. Indian Railways and SAIL are working together to produce corrosion-free steel rails for safety and speed. Indian Railways has already introduced 10 Vande Bharat trains and is planning to launch another 478 trains. It is also working on various mechanisms to protect the web area of the rail from corrosion, which would bolster India’s zinc demand.

Business Overview

Hindustan Zinc, India’s largest primary zinc producer, commanded a market share of 75% in FY 2022-23. About 59% of the refined zinc produced by the Company is sold in the domestic market, and the rest is exported to the SAARC, South-East Asia, Middle East, US and Europe. Our portfolio spans a range of zinc products, including Special High Grade (SHG), High Grade (HG), Continuous Galvanising Grade (CGG), Prime Western (PW), Jumbo SHG & HG and other grades used in die-casting alloys. Our zinc SHG products are registered with LME. The Company is working closely with its customers to increase the proportion of value-added products (VAP) in its zinc portfolio. It is striving to augment the supply of VAP to 18% of total zinc sales in FY 2023-24, from 15% in FY 2022-23.

As part of market development activities, Hindustan Zinc, in collaboration with the International Zinc Association (IZA), is working on multiple projects to increase the zinc per capita consumption in India. Along with IZA, we organised several awareness seminars and programmes on applications of zinc for various stakeholders across the country. Currently, we are working with IZA on major projects, which include supporting BIS for development of standard continuous galvanised rebar in collaboration with IIT Madras, promoting safety with GI scaffolding, rail track metallisation and automobile galvanisation.

Enhancing our VAP portfolio

A new production line is under commissioning through Hindustan Zinc Alloys Private Limited (HZAPL), with a capacity of 30 Ktpa in its phase-1 implementation. We are planning to introduce ZAM, HZDA-5, EPG, along with the currently produced HZDA-3 and CGG slab, in our VAP portfolio, which will help us increase our VAP share.