Bulk of zinc market participants see metal locked up in warehousing deals

The majority of zinc participants see the market moving in one direction this week, with demand sluggish and metal being locked up in warehouse financing deals, as London Metal Exchange Warehouse stocks held firmly above 1 million mt, sources said.

Most believe that the metal is likely to continue to be locked up in financing deals like fellow LME contract aluminium.

Zinc is a key alloy in galvanizing steel. As the steel market has stumbled, so too has demand for zinc. As such, LME inventory has continued to rise. Although stocks dipped a modest 3,025 mt Friday, total LME-registered stocks were still above 1 million mt, at 1,142,900 mt.

One source said it was likely the market would see more banks moving to the sector for financing deals in warehouses. Citi Bank recently put out a note saying the metal could go the same way as aluminium.
Some 5,052,625 mt of aluminium is currently tied up in contango financing deals in LME-warehouses. But a physical trader argued that demand for zinc simply wasn't strong enough to cause the metal to head the same way as aluminium: "If you want metal you can get it," he said.

One analyst countered, however: "Yes, there is metal out there if you want it -- but you've got to pay for it," to the premiums plus LME cash.

SHOCK INCREASE

Barclays said in a research note earlier in the week that Chinese September import data showed that, "surprisingly, there was a shock increase in refined zinc imports, to the highest level seen since May 2009."

The bank noted that, "while the domestic market has certainly tightened following smelter production cuts, from a structural point of view, China is not a country currently in need of zinc metal, in our view. However, the tightness created by smelter cuts has resulted in a widening of the SHFE/LME price arbitrage and this has attracted additional metal in as a result."

Platts assessment of SHG zinc premiums on Friday was $120-130/mt, from $105-125/mt previously, plus LME cash, in-warehouse Rotterdam.

"The global markets for aluminium and zinc have run sustained and substantial surpluses in the five years since the first tremors of the financial crisis were felt in 2007," Macquarie said in a research note.

"This is the result of record output rather than disappointing demand. However, output should not be confused with availability. Indeed, access to metal units has sometimes been limited, and the price of access inflated, by stock holding and financing activities," the Australian investment bank added.

Still, another source said although a range on premiums of $120-130/mt was fair, "there's nothing going on in the physical market."

LEAD MARKET QUIET

Looking at sister metal lead, sources said the market was also currently quiet. "There is a high level of uncertainty," a trader said. He added that there was not too much material on the ground in Europe and that it was difficult to book large quantities at moment. He said that premiums were around the $50-70/mt level plus LME cash.

A second trader also said that there was little activity in the European lead market. "We have not done too much, just some small quantities around 150 mt. We have sold at the $70/mt level," he said.

Platts assessment of premiums for 99.985%-grade were unchanged at $50-70/mt plus LME cash, in-warehouse Rotterdam.

Lead stocks were up 450 mt Friday at 310,325 mt.

One trader said that "lead and tin are the metals with the most upside at present."

Lead, which is used primarily in car batteries, was being supported by growing car numbers in emerging markets.

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Metals/8855524

Bulgarian zinc smelter goes on public sale

The zinc production units of OTZK, once Bulgaria's second largest lead and zinc smelter, will be put up for sale after the smelter failed to pay its debts and its workers, a private enforcement agent said on Monday. The smelter, which stopped its zinc production in December last year, has been unable to pay its dues to French BNP Paribas and Bulgarian Fibank, as well as other creditors, estimated in total at about 190 million levs ($119.98 million).

The smelter, majority-owned by Bulgarian company Intertrust Holding, has also failed to pay to its workers since last year and over 260 cases against it have been filed in court, private enforcement agent Rosen Sirakov said. "The assets were listed as collateral against a loan by Fibank. The bank has a court order to take over them and decided to go with a public sale," Sirakov said.

The smelter's creditors are also allowed to take part in the sale, bids for which will be accepted until September 13. The initial price tag is for 8.3 million levs. OTZK, situated in the southern city of Kardzhali, has seen its debt rising after the environment ministry blocked its lead production last year over pollution concerns.

The zinc production has virtually stopped since December when the plant was closed for repairs. It has since tried twice to restart it but without success. OTZK and Intertrust Holding were not available to comment. It produced 16,600 tonnes of zinc in 2011 and 6,500 tonnes of lead in 2011. Trade unions hope that the zinc production can be bought out by Fibank which can then try to find investors for the zinc plant and restart production.

http://www.brecorder.com/market-data/stocks-a-bonds/0/1227504/

Hindustan Zinc increases production to maintain margins

Hindustan Zinc Ltd (HZL), after posting a record profit of Rs 5,526 crore in 2011-12, now faces pressure on its margins, with prices having fallen sharply in the first quarter. “Like any other zinc producer globally, operating margins are impacted by the prices (at London Metal Exchange),” Akhilesh Joshi, chief executive officer, told Business Standard. “The company is implementing a multi-pronged strategy of increasing production and upping its lead and, consequently, silver production by improving recovery of metals from the ore and de-bottlenecking the production process. This will help in cost optimisation, and take pressure off operating margins.” HZL has begun an additional smelting plant for lead, which is in short supply. Most of the benefit will accrue in the current financial year. Production capacity will go up to 185,000 tonnes this year from 85,000 tonnes. Silver production will rise to 350 tonnes this year and 500 tonnes next year. It has initiated and sharpened the focus on de-bottlenecking plants to improve productivity, increase capacity use and also help improve the recovery of metals from the ore. Last year, lead production was 55,000 tonnes out of a capacity of 85,000 tonnes. In zinc, capacity was 880,000 tonnes and output was 570,000 tonnes. Three-month zinc prices on the LME have declined 5.4 per cent since March 31, while spot prices on the Bombay Metal Exchange have gone up by 4.7 per cent in the same period, in rupee terms. According to Emkay Global, the company obtained six prospecting licences in the past year, while applying for three mining leases. Joshi confirmed the company “plans to continuously engage in exploration, cost optimisation and increase its volumes to meet the fluctuations at the LME and domestic zinc prices”. Hindustan Zinc’s Rampura Agucha mine is the world’s largest zinc producing mine and smelting complex, at Chanderiya in Rajasthan. It is the world’s largest single location zinc smelting complex. The cumulative reserves and resources was 143.7 million tonnes in 2002, which is now 333 mt. The company expects global demand for zinc to increase at three to four per cent per year. Demand for metals in India is expected to grow at 8-10 per cent per annum. HZL’s mines and smelters are consistently ranked by Brookhunt, a leading industry consultant, as amongst the lowest cost operations globally. http://www.business-standard.com/india/news/hindustan-zinc-increases-production-to-maintain-margins/480066/

Zinc futures up on strong spot demand, Asian cues

NEW DELHI: Zinc traded shade higher by 0.58 per cent to Rs 104.80 per kg in futures trade today, after speculators enlarged positions, driven by a firming trend in the Asian region.

On the Multi Commodity Exchange, zinc for delivery in June edged higher by 60 paise, or 0.58 per cent, to Rs 104.80 per kg, with a trading volume of 571 lots.

The metal for the July delivery also moved up by 40 paise, or 0.57 per cent to Rs 105.40 per kg, with a trade turnover of 28 lots.

Analysts said besides a firming trend in copper and other base metals at the Shanghai Futures Exchange, pick-up in demand in the spot markets also pushed up zinc futures prices.

Meanwhile, the London Metal Exchange is closed for the Queen's Diamond Jubilee Holiday on June 4 and June 5. 

http://economictimes.indiatimes.com/markets/commodities/zinc-futures-up-on-strong-spot-demand-asian-cues/articleshow/13842128.cms

Fall in zinc output from global operations a concern for Sterlite Industries

Rising production costs, volatile prices on London Metal Exchange and fluctuating rupee in the past fiscal resulted in a 35% decline in Sterlite Industries' consolidated net profit for the year to March.
While its copper and aluminium businesses don't pose much concern, the 10-12% expected decline in production at its zinc international operations by March 2013 is a cause for concern since this business contributes about 21% to Sterlite's consolidated profit.
The expected fall in production, due to the decline in grades, is a transitory problem, according to the management. However, it will not only impact sales growth, but will also impact profits next year as the cost of production will rise as well.
For zinc-lead India operations, the largest contributor to the company's profit, production in the first two quarters of the next year is expected to be lower, but will pick up by the end of the year. Production costs, which rose last year due to higher coal prices and rupee depreciation, are likely to remain high unless there is a significant change in these factors.
Silver production, which grew 32% to 237 tonne last year, is expected to grow almost 50% to 350 tonne by March 2013. It contributes directly to profit since it has got as by-product of purifying lead and does not have an additional production cost.
Its copper business grew at a healthy 35% for the year on account of higher TcRc (treatment and refining) margins. But higher power and fuel costs lowered annual profit from Rs 1,625 crore to Rs 1,155 crore. Profits were also impacted by the one-time payment of Rs 423 crore on account of legal fees it paid due to a case it lost in a US court.
Higher power and fuel costs and lower LME prices were also responsible for the 50% decline in profits for its aluminium business. Sourcing of bauxite and coal remain a challenge which is not likely to get resolved in the next few quarters.
http://economictimes.indiatimes.com/news/news-by-company/earnings/earnings-analysis-/fall-in-zinc-output-from-global-operations-a-concern-for-sterlite-industries/articleshow/12888024.cms