Supply constraints will keep Zinc prices firm, target price Rs 195 on March 2017

By: | Published: August 30, 2016 1:54 PM

Zinc has outperformed other base metals over the last eight months as supply pressures mount on widening metal market deficit, low spot zinc treatment charges (TCs), coupled with new safety regulations in China, which could limit supply from the region.

Supply constraints will keep zinc prices firm, target price Rs 195 on March 2017Zinc has outperformed other base metals over the last eight months as supply pressures mount on widening metal market deficit, low spot zinc treatment charges (TCs), coupled with new safety regulations in China, which could limit supply from the region. (Reuters)

Zinc has outperformed other base metals over the last eight months as supply pressures mount on widening metal market deficit, low spot zinc treatment charges (TCs), coupled with new safety regulations in China, which could limit supply from the region.

Religare, in a research report, has said that global zinc markets would be on tenterhooks, especially after Glencore stating it could restart production “if and when it wishes” and the company not raising its CY16 guidance despite the zinc price rally.

In a report report, Religare maintainted a ‘buy’ rating on the commodity with a March 2017 target price of Rs 195 a kg. The current price is around Rs 154.

Religare has pointed out that according to International Lead and Zinc Study Group’s (ILZSG) preliminary report dated Aug 22, 2016, the global market for refined zinc metal saw a higher deficit (metal production less metal usage) of 138KT (kilotonnnes) in Jan-Jun 2016 versus 64KT (revised to 121KT) in Jan-May 2016. As of Jan-Jun 2016, global refined zinc metal production declined 4.2 per cent YoY while global usage increased marginally by 0.6 per cent YoY. ILZSG has attributed the production decline to lower metal production from India. Hindustan Zinc’s lower refined metal production would have likely contributed 50 per cent to the loss in global output.

Also, Chinese spot zinc TCs, i.e. fees paid by miners to smelters to convert ore into finished metal, have hit at a four-year low in China at $100/tonne. This points to the fact that smelters are facing trouble in finding zinc concentrate. The marginal increases in global mine output during CY16 (June output at a 10-month high but down 6.7 per cent YTD) has failed to increase availability of concentrate for Chinese smelters. Hence, they may have to shut operations if availability does not improve significantly, providing a fillip to zinc prices. With HZ likely to ramp up mine and metal production in H2CY16 as mining of ore takes over mining of waste in sequencing, the company should benefit from the uptrend in zinc prices.

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