Zinc oxide manufacturers plan to cut production from June as zinc oxide demand could decline if tyre manufacturers are unable to retail their inventories soon. Zinc dross prices could drop as oxide manufacturers curtail production in line with fall in demand.
Tyre companies in India are cutting down production post the COVID-19 pandemic as vehicle sales have slumped. Many oxide manufacturers export zinc oxide but foreign companies have also cut down production. This would lead to a decline in demand for zinc dross manufacturers as only a few galvanizers have resumed operations amid the lockdown.
More than 60pc of the zinc oxide produced in India is consumed by tyre manufacturers and the rest is consumed by ceramics, paints and fertilizers in smaller quantities, which marginally impacts the demand for zinc oxide. Indian tyre makers are expected to produce at 30-40pc capacity in June compared to the prior year. Major tyre manufacturers have enough finished inventories and are currently focused on sales. The production of tires in low volumes has affected the demand for zinc oxide and in turn zinc dross which is consumed by oxide manufacturers.
Zinc oxide orders have reduced by 85pc in May compared to a year prior. In a regular month, oxide manufacturers buy approximately 2,000-2,200mt of zinc dross but purchases could drop significantly given the weak demand, said oxide manufacturers.
In cities like Delhi and Mumbai, galvanizers are waiting for the revival of demand from oxide manufacturers and have decided to resume production only when orders return. Steel galvanizing has halted as construction and pipe laying activities were stalled due to the pandemic, said Mumbai-based galvanizers.
COVID-19 has disrupted the zinc scrap market. Zinc dross prices were around Rs160,000/mt in January and prior to the lockdown prices had fallen by Rs10,000/mt to approximately Rs150,000/mt on March 25 amid diminished demand. Prices could fall once the market resumes operations and only improve when auto sales pick up.