Oz mine reopening may cool zinc & nickel prices

KOLKATA: Global zinc and nickel supplies are likely to ease this week with Australian zinc mine Century and nickel refinery QNI slated to reopen this week after they were shut down as a precautionary measure in the wake of Cyclone Yasi. The two mines account for some of the largest supplies of the two base metals globally, which find use as non-corrosive coatings across a range of steel-based consumer durables.

While zinc is used as a galvanising agent on steel sheets, nickel goes into the making of stainless steel which is preferred across transportation and consumer durable sectors as a rust-free and weather-proof material. Galvanised sheets and stainless steel are used in train wagons, cars, refrigerators, washing machines and even high-end construction.

With supplies from mines getting affected, the prices of the two base metals are estimated to go up. With prices benchmarked to rates on the London Metal Exchange (LME), Indian steel makers would have to contend with higher input costs on account of zinc and nickel. This could push up the prices of consumer durables too.

Analysts feel that the price uptick in zinc and nickel will continue for sometime now. For instance, zinc was at Rs 110.5 per kg at the beginning of this month but it has gone up to Rs 114/kg now. On the LME, the price has appreciated nearly $136 per tonne to $2,538 per tonne in the first week of February. “Prices are expected to firm once China enters the market. People are betting on short covering if China comes into the trade,” said Anand James, chief analyst at Geojit Comtrade.

The only silver lining is that while operations at the QNI refinery, which produces 30,000 tonne per year, are likely to resume and production due to start over the weekend, the Century zinc mine was to be reactivated this week after precautionary closures. Incidentally, the Century mine is estimated to produce over 500,000 tonne of zinc in concentrate in 2011. However, production losses from the suspension were likely to be less than 9,600 tonne anticipated earlier by the company.

Xstrata’s Mt Isa copper mining and smelting unit in Australia is also set to start operations this week. However, it is uncertain when the Townsville refinery which produces 300,000 tonne a year would restart. Production at the refinery, located close to the QNI plant, was suspended on February 2 in the wake of the cyclone.

The rise in nickel prices continued for the third straight session on Monday and prices remained trading at 34-month highs on MCX. The near-month February expiry contract for nickel now trades at Rs 1,306 per kg, up Rs 11 or 1%.