Hindustan Zinc struggles to get desired coal domestically; expects LME zinc to stay at $3000/tonne

Vedanta group firm Hindustan Zinc Ltd (HZL) on Friday, reported a 3.9 percent rise in its net profit at Rs 2,017 crore for the quarter ended September 30, on the back of higher revenue from operations. The company had posted net profit of Rs 1,940 crore in the year-ago period. The revenue from operations in the July-September quarter increased to Rs 5,958 crore, from Rs 5,533 crore in the year-ago period, the filing said. The total expenses of the company during the quarter increased to Rs 3,571 crore, as against Rs 3,428 crore in the year-ago period. Arun Misra, CEO of Hindustan Zinc, spoke to CNBC-TV18 to discuss the company's Q2 performance and share his outlook on the global zinc demand-supply picture post the partial shutdown at Nyrstar.

Misra said, “Nyrstar’s cut down of 50 percent of their production is having an impact and also, the whole global economic situation is changing. On one hand, you have shortages of coal and resulting high prices, then there is declaration by China to cut down its power supply in many of their provinces, as well as plants shutting down because the government is not supporting import of high-cost coal. So that is also having an impact.”

“LME stocks are one of the lowest, hardly about seven, seven and a half days’ worth of stocks. So, all these factors have pushed up the LME. It will remain for some time, before the various governments step in and do some corrections by raising productions of coal; primarily China, perhaps, will raise its own coal production to counter the situation. Energy prices should come down to a level which would be more affordable by interventions. But these are all predictions, I don't know how much of it will be true. But my take is, overall if I look at H2, a very sustainable LME on the higher side should be anywhere between $3,000 and $3,200 per tonne,” he said.

Hindustan Zinc's Chanderiya lead zinc smelter is the world's largest smelter complex located in Rajasthan and volumes were hit as the smelter was shut down for maintenance.

Misra said, “It came back to operation in September itself, precisely on September 26 and it came back to operation about eight days ahead of its scheduled. So, we had planned it for 60 days, but we could finish the work in 52 days, which is one of its record and similar work earlier had taken us 70 days. Next year, we have another such shutdown coming up but this time, we have completely redone the technology and I am sure it will be done in 25 to 26 days. So, as things are going on, we are learning, we are connecting with better technology providers to cut down the time for such shutdowns because we understand this puts us off from the market for quite a long time.”

On coal sourcing mix, he said, “Roughly 75-25 is the proportion between imported coal and domestic coal. Domestic coal is all linkage coal and linkage coal, we try to tie up as much as possible, but again due to production by the various Coal India subsidiaries at the same time prioritization by government between energy producers in India and metal companies like ourselves, we do not get the kind of quantity that we would like to pick up from them and that is a big challenge that we have.”

He further said, “Looking at this quarter as well as the next quarter’s production, we have tied up global supply and protected ourselves till about March of next year. So, I don't see any supply side issues.”

On cost issues, he said, “Always the expectation is that cost will cool down maybe by Q4. If not, we have lined up lots of initiatives to recover that money, through sale of different residues. We are expecting even higher realisations in the asset sales going forward and since the roasters will be producing full on, so asset generation should be higher and that would add to more earnings.”