Zinc consumers grow wary as substitution threat rises

Print this page Posted on : 06-14-2007 by recycleinme.com

As zinc prices hold well above historical averages, consumers are being forced to reckon with the consequences of substitution away from the metal towards more economical materials.

HIT HARDEST

The full impact of zinc’s higher price is unlikely to be known for months to come, as new products take time to develop. But consumers that use zinc early on in the supply chain – such as die casters and pre-galvanisers – have so far been hardest hit, said zinc consumers. Under pressure from customers to substitute towards cheaper materials, some companies face higher production costs or risk losing business altogether.

“It’s a precarious situation for the zinc die-casting industry at the moment, with customers taking a very close look at zinc against other materials,’ said Mr. John Jackson, sales engineering manager with die caster Fishercast Global in the UK.

BULL –RUN

Zinc prices have been on a major bull-run over the past few years. After ranging near $1,200 a tonne since 1995, prices soared in mid-2005 by some 200 per cent to around $3,700 a tonne amid a commodities –wide rally, surging Chinese demand and declining inventories.

HIGH PRICES

High zinc prices are having an impact and if prices remain high, the average consumer will see the impact in one to two years’ time, due to the lag time on the product development side, said MR. Heather Griffiths, lead strategist with pre-galvaniser Corus, Europe’s second largest steel producer. Corus is a subsidiary of Tata Steel, the world’s sixth-largest steel producer.

Pre-galvanising comprises roughly 80 per cent of the total European galvanising market, said Mr. Griffiths, with a similar figure in the US. European refined zinc consumption during 2006 was 2.755 million tones, according to the International Lead and Zinc Study Group, roughly 25 per cent of world demand.

Pre-galvanisers are reducing zinc usage, lowering coating weights, and switching to less zinc – intensive coatings such as Galvalume, he said. Galvalume is comprised of 55 per cent aluminium, 2 per cent lead and 43 per cent zinc. Substitution threats are high in key transportation and construction sectors as customers may opt for concrete, timber and post-painted steel products over galvanized steel, Mr. Griffiths said.

Source : Business Line