Price hike fixed to boost receipts of Hindustan Zinc

Supply disruptions in Europe due to closure of smelters amid rising electricity prices pushed up zinc prices. Strong demand for zinc and low inventories on the London Metal Exchange (LME) have already driven zinc prices higher. With a gain of over 15% this month, the metal’s price is up about 43% over last year.

It is improving the realization outlook for Hindustan Zinc. Average zinc receipts are expected to improve 3% sequentially during Q2, following a 49% year-over-year and a 6% sequential jump in average zinc receipts seen during Q1, analysts said. The current surge in zinc prices will continue. Increase in receipts in the coming quarters.

Along with zinc, Hindustan Zinc is also benefiting from higher lead and silver receipts. Average LME lead prices are also projected to increase by 7% during the second quarter. With the increase in base metal prices, the company will benefit from changes in its mining practices and increased output. It is working on increasing its mined metal production from 1 million tonnes per annum (mtpa) to 1.2 mtpa. This means that the volume can improve as well. Despite these gains, the rising cost of production (COP) due to rise in crude oil and coal prices needs to be monitored. The firm had initially planned to keep the COP below $1,000 a tonne, but the cost rose to $1070 a tonne in the June quarter.

Analysts at PhilipsCapital India Research expect COP to be 6-7% higher sequentially in the September quarter on account of coal prices. In addition, zinc production during the second quarter was impacted by the closure of a smelter. Higher COP and lower metal volume could impact Q2 margins.