Replies to post #943 on Zinc

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Galvanizers reduce zinc usage due to high metal prices

High zinc prices can take up as much as 35% of galvanized steel production costs, forcing galvanizers to find ways to reduce their usage of zinc, said Heather Griffiths, lead strategist at Corus.

Corus consumes roughly 120,000 metric tons of zinc per year as a major supplier of the galvanizing market, said Griffiths during the Metal Bulletin zinc conference Wednesday.

Moreover, global demand growth in galvanized steel is expected to increase roughly 12% from 2007 to 2010, said Griffiths.

However, as the zinc price grows, the impact on galvanized steel production costs rise, said Griffiths, adding that zinc takes up roughly 35% of production costs when London Metal Exchange zinc prices are above $4,500 a metric ton.

And in order to deal with the cost pressure, Corus has to hedge its zinc exposure on the market, said Griffiths, declining to give any further details.

"We want to be galvanizing, but we need a balance" as zinc prices are so high, said Griffiths on the sidelines of the conference.

And, although zinc prices are expected to decrease to 2010, the possibility of supply disruptions raise many questions, said Griffiths, adding that the speculation and uncertainty of the market means galvanisers are being more cautious.

In the construction and transportation sectors, which account for roughly 70% of galvanized steel demand or roughly 15 million tons, galvanized steel is seeing some threats from substitution, said Griffiths.

The substitution threat for galvanized steel is real with post-painted steel, concrete and timber vying for market share, Griffiths said. And in the transportation sector, galvanized steel is seeing threats from plastics and aluminium, Griffiths added.

In response to the high zinc price, galvanizers are optimizing current processes to reduce zinc usage, lowering coating weights, and switching to less zinc intensive coatings such as Galvalume, said Griffiths.

Galvalume is comprised of 55% aluminium, 2% lead and 43% zinc. However, because the exposure in Galvalume is to both aluminium and zinc prices, Griffiths questioned the long-term viability of this alternative.

Griffiths said Corus expects to expand its galvanizing steel production capacity in the Netherlands to 3.5 million tons from 3 million tons by 2010. Griffiths urged zinc producers to keep investing in supply. Tata Steel (500470.BY) completed its acquisition of Corus Group PLC on April 2.