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

India’s steel demand recovery is key for zinc demand in FY22 (April 2021-March 2022). Key government initiatives including the modernization of railways and highway construction could boost the use of galvanized steel, according to a report by Care ratings. The ratings agency expects global steel demand to show a further recovery which could support demand for zinc.


Indian markets are reviving from the COVID-19 crisis boosting demand from the infrastructure and automobile sector that witnessed a sharp recovery, supporting demand for zinc, especially in the second half of FY2021. 


Steel production in CY2020 was significantly lower, excluding China that reported steel production up 5.2pc from the prior year. Steel production globally has dipped 7.7pc from the prior year. The dip in steel production has impacted zinc consumption. The supply side also suffered from a reduction in mined zinc production which lifted prices to a certain extent, states the report.


Global economies are recovering slowly resulting in a near V-shaped recovery for countries like China and India. Economies would continue to recover as vaccines are being rolled out effectively, which would support growth. 


Zinc market in 2020

Global zinc concentrate production in 2020 dipped by 5.9pc majorly affected by pandemic and mine closures in several countries. Complying with COVID-19 measures to limit the spread, mining became more difficult and production levels could not be ramped up to pre-COVID levels even after the lockdown was lifted. Furthermore, marine logistics challenges also affected mining companies. 


Lower zinc concentrates impacted the production of refined zinc metal, prices increased by a marginal by 1.2pc mainly on the back of 2.9pc growth in China’s output. China accounts for more than 46pc of global production and consumes more than 50pc of global supply. China’s consumption of refined zinc jumped by 1.3pc, while globally it dipped by 4.4pc. Consumption in India, the US, Japan, Korea and Europe combined dipped by 9.7pc in 2020 compared to the previous year. 


Zinc Prices

In December 2020, prices climbed to pre-COVID levels touching $2,780/mt which was the highest levels in a one and half year timeframe. Prices had peaked in January 2020 to $2,454/mt after US-China entered Phase-I deal. COVID-19 pressured prices of zinc which fell to its lowest levels in three-years to $1,773.50/mt. Demand from end-user industries drained amid stringent lockdowns leading to sharp rise in zinc inventories at LME. 


India’s zinc market

The growth of steel market in India would be the key reason to uplift demand mainly galvanized steel. Galvanizing in India accounts for 57pc of zinc consumption followed by zinc coatings 16pc and die-casting alloys, which consumes about 14pc of zinc. Around 7pc is used by oxides and chemicals and 6pc is used for extruded products. 


Major steel-consuming sectors like automobiles, construction remained weak in the first half of 2020 due to lockdown that began towards the end of March 2020. In March quarter, zinc production fell by 8pc as compared to the previous year. 


Exports increased in the absence of domestic demand for zinc. Exports jumped 113pc in Q1 and by 62pc in Q2 compared to the previous year. The fall in zinc consumption can be attributed to the fall in demand for domestic steel. Zinc demand improved significantly with the unlocking process beginning from June 2020 onwards, notes Care ratings.


Higher domestic and international demand resulted in a sharp 8.6pc growth in zinc output in Q2 and a 2.2pc jump in Q3FY21 from the prior year.

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