High zinc prices worry steel makers

Mumbai, Jan 2 | Updated: Jan 3 2006, 07:13am hrs
Zinc is the new mineral to add to the woes of steel industry, after the availability of iron ore and coal has been widely debated. The soaring zinc prices is pinching the galvanised steel producers following an almost 85% increase in zinc prices in the last one year.

Moreover, this has happened at a time when prices of galvanised products have seen almost 30% fall in the last 9 months or so. Galvanised steel prices across the world has fallen in line with the fall of HRC prices, officials at Ispat Industries said.

According to Bhushan Steel & Strips chief financial officer Nitin Johari, The effect of these soaring prices is reflecting on our cost and in the present scenario we cannot increase the prices of galvanised products.

Zinc is a high-cost raw material used to make GP/GC sheets and plates. Like steel, domestic prices of zinc is benchmarked with international prices.

While international steel prices have seen a fall of over 30-35% in the last nine months, prices of raw material like zinc in the spot market of LME has increased by 87% to $1813 per tonne in December 2005 from $969 per tonne in September 2004.

While we try and hedge zinc prices; sustained increase in zinc prices over the past one year has been a difficult proposition to counter the cost push, Ispat officials said.

In fact, end users of zinc point out that while overseas suppliers like Glencore etc are at least giving the committed quantity; one of the largest domestic supplier is not even giving that.

As a result, cost of zinc as an input has increased from Rs 2,000 per tonne to about Rs 4,500-5,000 per tonne for every tonne of steel produced, contributing to almost 15% of cost of production of GP/GC sheets, sources said.

We wish we could have stopped the sales of galvanised steel products. But if the zinc prices continue to rise further, may be all galvanisers would have to reduce production to the extent possible, Mr Johari said.

The annual consumption of zinc at Bhushan steel is almost 30,000 MT and galvanised products forms approximately 30% of the companys production volumes. Ispat consumes about 20 tonnes (20,000 kg) of zinc annually for its 4 lakh tonnes annual galvanising capacity.

The lowering of import duty on zinc could be the silver lining. However, it is currently inconsistent in line with the harmonised tariff structure. Import duty of zinc is 10% along with a 2% cess, while that of finished steel is only 5%, sources said.