Hindustan Zinc expects to gain from strengthening metal prices

KOLKATA: Hindustan Zinc Limited (HZL), the country’s largest and only integrated zinc producer, expects to gain from strengthening metal prices in the near to medium term with robust demand at home and global supply constraints likely to feed the zinc rally.

Global zinc prices gained due to a spurt in demand in US and Europe, improving macro essentials in China, while domestic demand too has seen a 3-4 per cent growth in recent months. More significant, globally, there has been a deficit in supply of concentrates of the mined metal leading to depletion in stocks.

The International Lead and Zinc Study Group (ILZSG) estimates global zinc market deficit widened to 92,400 tonnes in April from a revised deficit of 72,700 tonnes in March this year.

With no new mines coming into production, the trend is likely to continue, said Sunil Duggal, CEO, HZL. “We expect the trend to continue in next two quarters. Zinc prices are likely to go up by a further 10% in the next six months or so,” Sunil Duggal told ET.

Zinc trades currently around $2,800 per tonne on the benchmark London Metal Exchange.

On Thursday, HZL reported an 81 per cent jump in net profit y-o-y to Rs 1,876 crore in the first quarter of FY18. In the quarter, the company's revenues shot up 79 per cent year-on-year (y-o-y) to Rs 4,961 crore, led by higher zinc & lead prices and higher volume.

The company said zinc metal cost of production per metric tonne before royalty (COP) during the quarter was at Rs 62,698 ($973), higher by 2 per cent y-o-y (6 per cent in dollar terms). The increase was due to substantial hike in coal & commodity prices and lower acid realization, offset by higher volumes.
The revenue and cost of production led to a 113 per cent increase in EBITDA to Rs 2,404 crore during the quarter, HZL said on Thursday.

However, the impact of higher EBITDA was partly offset by lower investment income on a smaller investment corpus post dividend pay-out and interest cost on temporary Commercial Paper.

"Our underground mines delivered their highest ever volumes this quarter, underpinning our smooth transition to an entirely underground mining company. Zinc prices strengthen towards the quarter-end on continued supply deficits and declining inventories,” said Agnivesh Agarwal, chairman, HZL.

HZL said mined metal production increased 84 per cent y-o-y to 233kt during the first quarter mainly on account of higher volumes from all mines, higher zinc grade and depletion of opening ore stock. Integrated zinc metal production during the quarter was at 194kt, up 91 per cent y-o-y while integrated saleable lead metal production during the quarter was at 35kt, up 42 per cent y-o-y.