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Indian premiums rise as Hindustan Zinc pushes Korean rival on backfoot
April 9, 2013 / 8:48 AM / 5 years ago

Indian premiums rise as Hindustan Zinc pushes Korean rival on backfoot

* Indian enquiries rise for zinc from global markets-traders
    * HZ undercuts Korea Zinc on Indian premiums to retain
market share
    * Traders note tighter supply in India
    * Singapore zinc in warehouse offered at $180, but no takers
- traders

    By Melanie Burton and Siddesh Mayenkar
    SINGAPORE/MUMBAI, April 9 (Reuters) - Tighter supplies and
rising premiums for zinc in India are spurring users and small,
local trading houses in Asia's third-largest consumer to scout
overseas for the metal.
    Fuelling the rise in premiums is a move by the world's No. 1
refined producer, Korea Zinc, to scale back its
expansion plans in India due to stiff price competition from
Hindustan Zinc, which holds a near-monopoly on the
    The retreat by Hindustan Zinc's top rival shows how tough it
is for foreign firms to crack the Indian market and illustrates
the domestic titan's aggressive tactics to defend its home turf
as it aims to grow sales in an already oversupplied market
    "The availability is very low due to lack of supplies from
Korea Zinc... Korea are out of the market this year," Sandeep
Daga, director at Mumbai-based Regsus Consulting, which advises
base metals companies, said of the Indian market.
    Zinc premiums in India have climbed to about $150-$200 a
tonne from $80-$100 at the start of March. Several traders in
Singapore noted a flurry of enquiries for global inventories
monitored by the London Metal Exchange. Premiums are paid on top
of LME cash zinc prices to obtain the metal. 
    "Hindustan Zinc increased premiums by about $50 in the
Indian domestic market for the last two weeks," a
Singapore-based trader said last week.  
    Hindustan Zinc is majority owned by London-listed Vedanta
Resources and is minority owned by the Indian
government. It is the world's third-largest producer of refined
    A Korea Zinc spokesman said he had no knowledge of the
company curbing sales to India.
    The impact on overseas zinc markets, however, has been
limited so far, with Indian consumers reluctant to pay higher
international prices.
    "If you want to buy zinc, you can get it at $180 in
warehouse Singapore but no one is going to pay. Customers.. are
not going to pay anything higher than $165," said a second
trader based in the city-state, referring to prices that include
insurance and freight costs.
    Zinc, used mainly to galvanise steel, attracts a 5 percent
import duty in India, although this can be offset by rebates, in
some cases of 2-3 percent.

    Korea Zinc supplies about 2,000 tonnes per month of the
metal to India and had aspirations to grow that figure to 20,000
tonnes per month this year, traders said.
    But Hindustan Zinc, which supplies 85 percent of India's
annual requirement of roughly 640,000 tonnes of the metal,
offered zinc at far lower premiums to some users, in a move to
protect its backyard.
    "They (Korea Zinc) were offering material at $135, but
Hindustan offered zinc at $20-$30 because they wanted to keep
them out of the market," the second trader said, citing one
    Indian end-users tend to buy cargo on credit terms from
suppliers, with up to 90 days for payments, and Hindustan Zinc
has told them those credit terms can be reviewed if they have
been getting metal from other suppliers, traders said.
    A Hindustan Zinc spokesman said that its premiums are market
driven and that its pricing is in line with the market.    
    The global market for zinc is expected to be in a
180,000-tonne surplus this year, according to a poll of analysts
by Reuters. The surplus and expectations for
slowing demand growth helped to push zinc prices to a five-month
low last week.
    India and South Korea cumulatively consume about 1.2 million
tonnes of zinc a year, according to investment bank Macquarie.
That is just a tenth of global market consumption and far behind
top consumer China, which analysts expect to use about 6 million
tonnes this year.
    Both Hindustan Zinc and Korea Zinc produce more than
domestic demand warrants and must therefore seek markets for the
metal outside their shores. (See table below for comparison
between the two companies)
    Traders said Korea Zinc could have been worried that its
strong position in Southeast Asia could come under threat from
Hindustan Zinc, given the Indian firm's ample supply. The
Hindustan Zinc spokesman said Southeast Asia was a natural
destination for the firm "due to geographical proximity".
    Also, Vedanta's stockpile of zinc, after it bought Anglo
American Plc's zinc assets in 2010, could be looking for
a new home, given a declining European market and global glut of
metal, traders said. The Korean firm may therefore have chosen
to make a tactical retreat from India to protect its Southeast
Asian sales, they said. 
    "The Koreans have been very smart. They know with the Anglo
material coming in that Hindustan Zinc could attack Southeast
Asia very aggressively," the first trader added.

 Company          Korea Zinc       Hindustan Zinc
 Revenue(MM,US$)  4,877.7          2,204.1

 Market Cap (MM   5,545            8,917
 Share price      -17.4            -15.0
 change (% YTD)                    
 Oper. Margin (%  13.8             62.2
 Refined zinc     1.1 MT           0.7 MT
 output 2012

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