Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Lower demand from galvanizers might reduce zinc demand in India as monsoon and localised COVID-19-related lockdowns hamper construction activities. Market participants rued that logistics is most affected during heavy rains across India which hurts market momentum not only for galvanizers but to all sectors. 


Demand for secondary zinc ingots and zinc alloys could dip in the monsoon season as infrastructure projects slow down or halt during monsoons. The pandemic altered the supply-demand cycle as long lockdowns hampered production, supply chain and strained market sentiments. 


In Delhi, traders opined that as COVID-19 has already affected the markets, monsoon disruptions might not be too severe. Demand may dip by 5-10pc and production cuts may be extended until the end of September quarter. For markets to return to pre-pandemic level, green shoots would be visible only post September or towards the end of 2020. “We are treading into uncertain directions due to pandemic, the renewed lockdown in Indian cities has made market recovery a tough task, said traders. 


Zinc market participants that belong to the small and medium enterprises are finding it difficult to run businesses due to liquidity crunch. They are avoiding credit-based transaction. This in turn is causing further distress to downstream small-scale businesses that depend on credit-based deals to procure raw materials. 


End-user demand

End-user demand in India is expected to remain weak as the pandemic has caused lay-offs and pay cuts. Auto sales have taken a hit and many die-casters have chosen to stop zinc die-casting for a while and their business is running on aluminium die-casting. Demand for zinc alloys was low even in pre-pandemic levels as they rely heavily on the auto sector. With the slowdown in the economy and production cuts across the value chain, some die-casters have enough inventories to last them for the long haul and they have therefore cut procurement of Zamak. Also, zinc alloys made from primary zinc ingots are priced high with Zamak#3 and Zamak#5 at around Rs193,000-196,000/mt ($2,577- 2,617/mt) as on July 20, which is up by approximately Rs10,000/mt from June levels, said die-casters and it is not feasible for them to buy given the current dynamics. Financially strong die-casters are dictating terms in the markets post lockdown. 


Global vs domestic

In July, zinc scrap and ingot prices jumped on the back of LME gains. LME zinc three-month contract is up by $226/mt as on July 22 from June 1 levels and stood at $2,213/mt. Chinese markets boosted demand as their economy improved in Q2 (June quarter) driven by infrastructure sector growth. LME prices were also supported by mine closures in South America. Peru, the top zinc ore producer, zinc production plunged by 86pc in April. Although mines have restarted activity, supply chain issues are consistent. 


In India, dross prices in Mumbai and Delhi are around Rs150,000-152,000/mt ex-works producer, which is deemed high by several oxide makers. Prices since June are up by approximately Rs6,000-7,000/mt. Prices rose solely on the back of LME zinc. Demand for dross remains low to-date. 


LME zinc is expected to fall in the coming weeks, opined market participants who believe that if prices remain high, players might want to find an arbitrage to dump in LME warehouses. This will bring down LME zinc contracts and a downturn of domestic demand could take a toll on prices beginning August. 


Spread analysis proved that overall, for the main zinc grades, the market has weakened since June despite all prices rising domestically but apparently not in line with LME. Spreads for dross in both Delhi and Mumbai were tighter in June and widened by 9-10pc towards the end of July as LME was on an upward trajectory. For secondary ingots, spreads were wider in the first week of June and slowly narrowed by12-18pc, weakening markets in India. If LME maintains the current level of $2,214/mt as on July 23 and if domestic demand declines in monsoons, market recovery for zinc will be gradual. 



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