In India, suspension of operations at tyre and rubber companies amid the COVID-19 lockdown has impacted the demand for zinc dross. Dross manufacturers are likely to face the heat of this lockdown even when the markets reopen due to economic slowdown and the resulting slump in auto demand.

 

Zinc oxide is vital for the vulcanization process which improves the elasticity and strength of the rubber.  Zinc oxide is manufactured from zinc dross. Tyre and rubber companies together account for about 65-70pc usage of zinc oxide. Even a marginal change in demand for tyres and rubber affects the consumption of zinc oxide, in turn impacting zinc dross prices.

 

Tyre and rubber manufacturers including MRF, TVS Srichakra, Ceat, Apollo Tyres and JK Tyres have suspended operations to abide by the rules set by the government during the lockdown.

 

MRF has cited its sales office, as well as plants across India, would remain shut until April 14. The company, however, states the financial impact is not ascertainable at present. TVS Srichakra has announced production suspension till April 1 at Madurai, Tamil Nadu while its Uttarakhand plant is stated to reopen on March 1. Ceat and JK Tyre, also have suspended production amid the lockdown. The production ceases announced by auto sector is also likely to impact tyre demand, having a ripple effect on zinc oxide and zinc dross.

 

On an average, 2,500mt of oxide is manufactured monthly with the use of 2,000-2,200mt of zinc dross, said a zinc oxide manufacturer. But currently, even the zinc oxide manufacturers and galvanisers have shut shop. A cumulative effect of the situation is likely to weigh down the zinc industry in the near term.  

 

Given the upheaval in the market, oxide makers are uncertain as to when the demand will return to the market. The situation could improve toward the end of the second quarter (June – September) as the economy gets back on track, said zinc oxide manufacturers. A lot depends on the way the automobile sector picks up pace, if autos fail to grow, the tyre sector will underperform even in the second quarter. Moreover, due to lockdown, many trucks are off the road. With the restrictions on transportation, less truck movement means less wear and tear of tyres, leading to a decline in the sale of big tyres. These reasons could impact the sales volume and price of zinc oxide.

 

India’s central bank announced a repo rate cut of 75 basis points coupled with a three months moratorium on repayment on all outstanding term loans, on Friday. This move will lower interest rates for loans and generate some credit flow in the market. Relaxation of loan repayment norms also might help both corporates, as well as consumers, get some respite from the impact of the COVID-19 lockdown.

 

As on March 23, the Davis Index for galvanizer’s dross settled at Rs146,325/mt ex-works Mumbai producer and Rs150,783/mt ex-works Delhi producer.

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