Zinc Investing News

By Leia Michele Toovey- Exclusive to Zinc Investing News

2008 was a year for unprecedented losses for both the zinc and lead markets.

As economic malaise spread around the globe, zinc for three month delivery fell about 49 per cent.  Lead, due to its close ties to the auto industry, took a staggering plunge from its peak value of $3400 per tonne, three month delivery, down to under US$1000 per tonne. In the first week of 2009 the base metals were off to a good start as the commodity indexes went through their annual reset, and details came to light about the incoming U.S. administration’s economic stimulus plan.

As prices plunged in 2008, many companies announced production cuts.  When it comes to zinc, output cuts lent stability.  Since mid-November the metal only fluctuated by $100 per tonne.  On the other hand, lead lost $400 per tonne over the same period. Most Chinese companies announced production cuts in November, the effect of which is still permeating through the markets. Zhuzhou of China slashed zinc production by 40,000 tonnes and plans to maintain the cut through the first quarter of 2009. China’s top lead producer, Yuguang gold and lead, has shut down its 100,000 tonnes per annum zinc facility since November.

Production cuts have not been limited to China. Xstrata Plc, the world’s fourth-biggest nickel producer, also plans to cut zinc output by 20 per cent. Chelyabinsk Zinc Plant, Russia’s largest zinc producer, recently revised its 2009 output forecast for the second time this year after posting a loss in the first nine months of this year. The total output will be somewhere between 100,000 and 110,000 of zinc, pending market conditions. In October, Chelyabinsk said it expected the company to produce 150,000 tonnes.

As the prices of lead and zinc remain at record lows, more production cuts may be in store as both metal’s inventories remain at high levels. With zinc taking its biggest hit last fall, the full effect has yet to ripple through the industry as many smaller producers barely getting by are likely to curb output in the coming weeks. Goldman Sachs said it was encouraging that production cuts amounting to almost 500,000 tonnes had already been announced. However, the possibility remains that the loosening of the credit markets and the implementation of federal stimulus programs may outshine high inventories, and a rebound may be just around the corner.

Over in India, the domestic zinc and lead industry has been appealing to the government to levy an import on finished products.   Back in April industry bigwigs Hindustan Zinc and Binani Zinc, petitioned the government for imposition of the duty.  The plan was scrapped when prices spiraled. On January 2, the companies got what they were asking for. The government withdrew the exemptions on countervailing duty (CVD) on imports of TMT bars, and duty on zinc and ferro alloys. This provides relief to domestic manufacturers by shielding them against cheap imports. The measures, announced by the government as part of the second stimulus package to boost demand in the economy, is expected to benefit leading companies like SAIL, Tata Steel, RINL, JSW and Hindustan Zinc. With exemptions withdrawn, the importers will now have to bear 10 percent countervailing duty on TMT bars and five per cent customs duty on import of zinc and Ferro alloys.