MoM figures indicate that the deficit of zinc is expected to increase to 1,16,900 tonnes in 2000-01 from 1,05,000 tonnes in 1999-2000. Demand for zinc would be 2.78 lakh tonnes in the current fiscal (2.545 lakh tonnes last year), while production is expected to be 1.611 lakh tonnes, same as in the previous year.

However the production figures estimated by the ministry of mines don't seem to be consistent with production figures of the domestic primary zinc manufacturers.

Binani Zinc is reported to have produced 29,161 tonnes in fiscal 1999-2000 and sources say Hindustan Zinc's production in 1999-2000 has been 150,000 and sales around 1,45,000 tonnes. A Bombay-based analyst with a foreign brokerage estimated zinc supplies in 1999-2000 (April-March) at 1,80,000 tonnes against a demand for 2,44,000 tonnes, the shortfall of 64,000 tonnes made up from imports.

In 2000-2001, he estimates the supplies at 1,85,000 tonnes and demand at around 2,69,000 tonnes, the analyst said. Zinc is mainly consumed in galvanising. The galvanising segment has been growing at a rate of 10 per cent for the last 3 to 4 years and the growth rates are expected to remain in double digits. Present consumption of galvanised products in India is around 1.2 million tonnes.

In 2000-01 the domestic demand for GP/GC sheets is likely to be in the region of 1.4 million to 1.5 million tonnes. According to figures provided by the Cold Rolled Steel Manufacturers' Association (Corsma) production of GP/GC sheets in 2000-01 is likely be around 1.85 million tonnes. "With the projected high growth of steel industry, resulting in demand for galvanisation with zinc, the demand for zinc in India is expected to grow rapidly," mines ministry annual report for 1999-2000 said.

The report said the per capita consumption of zinc at 200 grams is amongst the lowest in the developing world. But the report added that this is expected to increase to 281 grams for zinc by the end of current fiscal.

This rapid expansion in production and consumption of galvanised products is going to increase the gap between demand and supply of zinc. The deficit for zinc has been continuously increasing in the last few years from 59,000 tonnes in 1997-98 to 76,100 tonnes in 1998-99 and 93,400 tonnes in 1999-2000, according to the ministry of mines figures.

To bridge this gap of demand and supply, steps have been taken to increase the production as well as the resource base. Public sector Hindustan Zinc Ltd (HZL) is expanding the capacity of its Vizag (Andhra Pradesh) and Debari (Rajasthan) smelters by 10,000 tonnes per annum each. These additional capacities are expected to be available in the current fiscal. In addition, HZL proposes to set up a new zinc smelter of one lakh tonnes per annum with a captive power facility at Kapasan (Rajasthan). The smelter is expected to go on stream by the beginning of 2004 to meet the growth in demand by that time.

Currently HZL has zinc production capacity of 1.52 lakh tonnes. Other producer of zinc is Binani Industries with capacity of 30,000 tonnes. Binani Zinc too has plans to double the capacity at its smelter in Alwaye, Kerala to 60,000 tonnes per annum with a captive power facility. However, the company has not yet tied up the means of financing for the project.

Despite these capacity additions, India will still be a net importer of zinc. Even with a projected 6 per cent consumption growth, the demand for supply gap would be in excess of 1,50,000 tonnes and would thus permit the new proposed smelter of HZL.

The only problem is price which being determined by the London Metal Exchange (LME) reflects the global demand and supply scenario rather than the domestic demand and supply. Global analysts of zinc are bullish on the prospects of zinc in the current year.

The general consensus is that demand growth for zinc in 2000 will be sufficient to absorb the higher refined zinc output and increased Chinese exports. Consumption growth is projected to be over 4 per cent for this year. Prices of zinc on the LME have recently broken through the seemingly insurmountable resistance level of $1,150. Spot zinc reached a three- month high of $1,167.50 on April 25 and is currently $1,159. Spot prices are expected to stage a bit of a technical rally because of the departure of hedge funds.

Zinc prices will find it difficult to cross and sustain themselves above the $1,200 level. According to these analysts, zinc prices are expected to average around $1,165 per tonne for the year indicating that they will be range bound between the $1,125 and $1,150 levels for the year. Domestic price of zinc mirrors the landed cost of zinc. If prices rise on the LME, domestic producers hike their prices and vice-versa.