Zinc at 10-year high forces Indian miner to break with tradition
Bloomberg|
Updated: Oct 24, 2017, 01.38 PM IST
Commodity Summary MCX
| ZINC |
By Swansy Afonso
Hindustan Zinc Ltd., a unit of billionaire Anil Agarwal’s Vedanta Ltd., has broken with its usual practice and hedged about a quarter of its annual metals production as prices trade near their highest level in years.
The company has locked in prices for 220,000 metric tons of zinc and 30,000 tons of lead, it said in an earnings statement on Monday. Zinc, used to galvanize steel for the auto industry, climbed to the highest in a decade this month and lead has risen to the strongest level since 2011. The decision to hedge was taken even as the company expects prices to remain elevated.
“We normally never hedge, but the volatility in the zinc prices was so high in the recent quarter that we decided it may be a prudent strategy to hedge a part of our production,” Chief Executive Officer Sunil Duggal said on a conference call. Zinc shortages will persist in the next few quarters, keeping prices at $3,000 to $3,500 a ton, he said. The metal was at $3,157 on Tuesday.
Zinc has soared 23 per cent this year, extending a 60 per cent jump in 2016, as cuts in global mine supply and China’s crackdown on pollution and mine safety created a shortage. Price swings have increased with the metal’s 60-day volatility near the highest level since June. Macquarie Group Ltd. said this month zinc may peak between $3,350 and $3,400 within six months.
The Udaipur, India-based miner said it hedged zinc at $3,084 a ton and lead at $2,418 a ton. About 165,000 tons of the forward sales were for the first quarter of next year and the rest for the following three months. Lead traded at $2,500 a ton on the London Metal Exchange on Tuesday.
“This is a sort of an exception we have done,” Duggal said. “I am not saying that we will not look at further hedging as prices increase.”
An increase of 3 per cent in global zinc demand in 2017 and similar growth next year will probably keep the market tight and prices high in the short and medium term, Duggal said. Even if Glencore Plc restarts some of its shuttered mines or other operations ramp up, there will still probably be a supply shortfall, he said.
Hindustan Zinc Ltd., a unit of billionaire Anil Agarwal’s Vedanta Ltd., has broken with its usual practice and hedged about a quarter of its annual metals production as prices trade near their highest level in years.
The company has locked in prices for 220,000 metric tons of zinc and 30,000 tons of lead, it said in an earnings statement on Monday. Zinc, used to galvanize steel for the auto industry, climbed to the highest in a decade this month and lead has risen to the strongest level since 2011. The decision to hedge was taken even as the company expects prices to remain elevated.
“We normally never hedge, but the volatility in the zinc prices was so high in the recent quarter that we decided it may be a prudent strategy to hedge a part of our production,” Chief Executive Officer Sunil Duggal said on a conference call. Zinc shortages will persist in the next few quarters, keeping prices at $3,000 to $3,500 a ton, he said. The metal was at $3,157 on Tuesday.
Zinc has soared 23 per cent this year, extending a 60 per cent jump in 2016, as cuts in global mine supply and China’s crackdown on pollution and mine safety created a shortage. Price swings have increased with the metal’s 60-day volatility near the highest level since June. Macquarie Group Ltd. said this month zinc may peak between $3,350 and $3,400 within six months.
The Udaipur, India-based miner said it hedged zinc at $3,084 a ton and lead at $2,418 a ton. About 165,000 tons of the forward sales were for the first quarter of next year and the rest for the following three months. Lead traded at $2,500 a ton on the London Metal Exchange on Tuesday.
“This is a sort of an exception we have done,” Duggal said. “I am not saying that we will not look at further hedging as prices increase.”
An increase of 3 per cent in global zinc demand in 2017 and similar growth next year will probably keep the market tight and prices high in the short and medium term, Duggal said. Even if Glencore Plc restarts some of its shuttered mines or other operations ramp up, there will still probably be a supply shortfall, he said.
