Hindustan Zinc Squeezes Costs to Combat Zinc Woes, Eyes Further Cuts

23 Jan 2024 , 10:29 AM

In response to declining zinc prices and sales brought on by supply-demand mismatches, inflationary pressures, and geopolitical concerns in the global market, Hindustan Zinc is considering lowering its production costs even further in the upcoming quarters in an effort to support its margins.

Arun Misra, the CEO of the company, stated in an interview with Moneycontrol that the company’s profit after tax (PAT) had decreased by 28% over the previous year. He attributed this to a decline in prices, which the company plans to offset with lower production costs.  Our cost of production has decreased by approximately $200 per tonne from the same quarter last year to this one.’

Chief financial officer Sandeep Modi responded, ‘Absolutely, if you see our story, the cost is the lowest in last 10 quarters,’ when asked if there would be any more reductions in the upcoming quarters. And we have decreased by $200 consecutively over the last four quarters.’  The cost of production (COP) estimate for zinc maintained by the corporation was $1,125–1,175 per metric tonne.

‘At this point in the quarter, we have $1,095 (Zinc COP). That means we are already behind schedule. In order to counteract this low LME environment and maintain profitability, the corporation has thus worked ruthlessly and unrelentingly on cost reduction,’ Modi continued.

According to the company’s presentation, zinc COP for the quarter was 15% lower than it was the previous year.

Thus far, the company has reaped benefits from lower input commodity prices, increased utilisation and availability of linked coal, enhanced operational efficiency, a key contract transformation strategy, and the automation and digitalization of operations to lower production costs.

In order to reduce expenses, Hindustan Zinc will use innovative alternate fuels and put more of an emphasis on operational efficiency.

The Vedanta Group company reported a nearly 6% decline in third-quarter profit last week as a result of declining prices. For the quarter that ended in December, net profit was Rs 2,028 crore as opposed to Rs 2,156 crore recorded the previous year.

The corporation has previously stated that in order to manage its debt load and unlock value, the group would divide its companies into distinct entities through a demerger.

‘We will hear some positive news by the next board meeting,’ Misra responded when asked about the demerger’s schedule.

‘Government disinvestment will be easier with the demerger,’ he continued. The remarks coincide with the Indian government’s announcement that it intends to optimise the value of the Vedanta subsidiary by selling its remaining 29.54% ownership in smaller tranches over an extended period of time.

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