DRGV Buys in April, 2015, we transferred our equity interests in CDI Jingkun Zinc and CDI Metal to Xiaowen Zhuang, a related party individual. We also sold 100% equity ownership in CDI Jixiang Metal to Dragon Capital Group Corp, a related party company.
Zinc prices have been relatively stable on the London Metal Exchange (LME) in 2014, in contrast to copper which suffered a steep decline. If they remain stable in 2015, too, it will be good for Hindustan Zinc Ltd. Incidentally, the government may benefit, too, as it wants to sell its stake in Hindustan Zinc. The International Lead and Zinc Study Group’s (ILZSG) recently released data for 2014 gives clues on what went right for zinc last year.
The global zinc industry’s mined metal output rose by only 1.4% during the year, as output declined in most major producing countries, except for China. The country accounts for 38% of output and a 6.3% increase was enough to offset declines elsewhere. While mined metal output may have been flat, refined output did increase by a higher 5%. Again, China was at the forefront with a 14.3% increase.
Normally, this may have seen prices come under pressure but demand for zinc was relatively strong, rising 6.5% during the year. Here, too, China led the charge but other countries such as the US, Korea and Europe, too, supported higher demand. The net effect was that ILZSG estimates that global zinc stocks declined by 321,000 tonnes to 1.56 million tonnes at the end of 2014.
Zinc prices are up by 4.3% since a year ago, compared with a 16.2% decline in copper prices. But 2015 has seen zinc start off on a weak note, with prices down by 7.1% from the start of the year. Back home, Hindustan Zinc appears to be staying the course in ramping up output. In the December quarter, its refined zinc output had risen sequentially by 8.8%. In January, government data shows that its zinc output has risen by 19%. Now, that may not be sustainable for the remaining two months of the quarter, but a healthy increase in output does seem possible.
Commodity trader and metals producer Glencore Plc said in an investor presentation on 3 March after reported full-year results that the market needs 3-3.5 million tonnes of zinc supply in the next five years to balance the market. It expects the market to remain in deficit and stocks to deplete, putting a floor under prices. The risk is if Chinese mine production goes higher than estimated or if approvals are granted to new mines.
The weak start to zinc prices in 2015 could be a concern if it persists, though prices are still higher from over a year ago. China’s recent decision to cut interest rates can be viewed as a positive for commodities or a signal that times are bad for the economy. While higher zinc output appears to be a positive for the industry, if zinc prices do not reverse trend then it can become a worry for margins. In the domestic markets, while Hindustan Zinc’s output ramp-up should see higher production, a revival in economic growth should see demand increase as well
Everything I say and write is my opinion and my opinion only. Do your own due diligence when investing
