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

Towards the end of August, galvanizer’s dross prices rose by approximately 7-8pc in Delhi and Mumbai on the back of bolstering demand from oxide manufacturers. However, spreads for scrap contracted in the same period  by 4-7pc. The official three-month Zinc prices rose 16pc or $329.5/mt to $2,554/mt in the one-month period whereas prices in India failed to rise accordingly. 


Oxide manufacturers mainly drive the demand for dross after having upped production as the auto sector’s growth picked-up. Oxide is a major raw material used in vulcanization of rubber for manufacturing of tyre. 


Demand for OEMs and auto components is rising as auto companies prepare for the festive season. Ban on tyre’s import is aiding the tyre companies, as is the rising demand from the auto sector after production ramp-up. Downstream manufacturers including oxide and zinc dross producers are gearing up to meet the demands. 


Since mid-July, maximum galvanizers resumed work but received very few orders, leading to low availability of dross. This shortage coupled with gradual growth in demand from oxide manufacturers supported prices of the zinc scrap. 


Galvanizing orders were on the lower side as only government construction work had gradually begun, not the private projects. Not all skilled labourers engaged in galvanising have returned to work, and COVID-19 is still affecting infrastructure projects, hampering production of downstream producers. 


With improvement in demand, shortages of dross and rising prices of primary zinc which is the basic raw material for galvanizing, galvanizers raised their offers in August. 


Dross prices in August

The Davis Index for galvanizer’s dross in Delhi on August 31 rose by Rs13,666/mt as it settled at Rs166,333/mt ex-works consumer from the last week of July. The prices in Delhi rose by approximately 9pc towards the end of August from last week of July. 

Similarly, the index for galvanizer’s dross in Mumbai rose by Rs10,700/mt to Rs162,500/mt ex-works producer on August 31 from last week of July. Dross prices rose steeply starting mid-August indicating healthy demand from both traders and oxide manufacturers. 


LME zinc rallied in August and pulled prices of Special High Grade (SHG) zinc with it which reflected on high raw material cost for galvanizers. Ideally, this results in galvanizers raising offers for zinc dross. Post COVID-19 lockdowns, the ideal market situation may have changed with domestic demand playing the upper hand. Demand for dross started growing only in August which influenced galvanizer’s to raise offers. 


Spread analysis

Despite a rise in domestic prices followed by improvement in demand, the markets for galvanizer’s dross in Delhi and Mumbai weakened as spreads widened by 4pc in Delhi and by 7pc in Mumbai on August 31 from July 27. LME zinc gained approximately 16pc in the same period while domestic prices failed to gain as much, leading to spreads widening and a weak market. 


The graph below depicts that prices have risen in line with LME zinc starting only mid-August with Delhi markets being more competitive than Mumbai as it is closer to LME. There is still room for prices to grow but lower bids and orders from oxide makers are keeping prices under pressure. 


Furthermore, demand from other sectors that consume zinc oxide like paints, fertilizers, and pharma is also growing slowly. If demand from all these sectors pan out to the expectation of oxide makers, then demand for dross and prices will also rise in the coming weeks.


Dross prices are seen on an uptrend since mid-August driven by improved demand from oxide manufacturers. Prices are moving in sync with LME zinc towards the end of August but in the end of July prices were more in sync as seen in the graph. This means markets weakened for dross as spreads widened towards the end of August compared to July end. 


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