Shares of Hindustan Zinc Ltd have got a boost from a global rally in zinc prices. The firm’s stock price closed with gains of more than 4% on Thursday.
Supply disruptions in Europe resulting from the closure of smelters amid soaring electricity costs are contributing to the surge in zinc prices. Strong zinc demand and lower inventory at the London Metal Exchange (LME) have already driven zinc prices higher. With a more than 15% rise this month, prices of the metal are up roughly 43% from last year.
This is improving the realization outlook for Hindustan Zinc. After a 49% year-on-year and 6% sequential jump in average zinc realizations seen during Q1, average zinc realizations are expected to have improved 3% sequentially during Q2, analysts said, adding that the current surge in zinc prices will further prop up realizations in the coming quarters.
Along with zinc, higher lead and silver realizations are also benefitting Hindustan Zinc. Average LME lead prices too are estimated to be up 7% during Q2. As rising base metal prices help, the firm would benefit from changes in its mining methods and an increase in output. It is working on increasing its mined metal production from 1 million tonne per annum (mtpa) to 1.2 mtpa. This means that volumes too may improve. Despite these gains, rising cost of production (CoP) due to the increase in crude oil and coal prices needs to be watched. The firm had initially planned to keep CoP below $1,000 a tonne, but saw cost increase to $1070 a tonne in the June quarter.
Analysts at PhillipCapital India Research expect CoP to be 6-7% higher sequentially in the September quarter due to coal prices. Also, zinc production during Q2 was impacted by shutdowns at one of the smelters. Higher CoP and lower metal volumes may impact Q2 margins.
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