OREANDA-NEWS. May 29, 2007. In the next five years, zinc consumption in Russia may nearly double (up to 400,000 tons), stimulating domestic zinc mining and refining, Chelyabinsk Zinc Plant (CZP) (RTS: CHZNG, LSE: CHZN) Commercial Director Berislav Galovich said at the 11th Zinc and Its Markets seminar held in Madrid by Metal Bulletin, reported the press-centre of  Chelyabinsk Zinc Plant.

Addressing conference participants, Mr. Galovich described the current zinc industry situation in Russia and the CIS states, as well as its past and forecasts for the future. In particular, he noted that the majority of producers have successfully overcome the difficulties of the transition period and are ramping production up. Thus, in 2006, zinc production in Russia made about 236,000 tons, whereas the total production level for all the CIS countries almost reached that of the 1980s (750,000 tons annually). The largest zinc producers in the CIS are Chelyabinsk Zinc Plant (production output 148,384 tons in 2006) and Kazzinc Plant (Kazakhstan) (production output 289,000 tons in 2006). CZP is the only zinc plant in the CIS producing SHG zinc confirmed by LME certificate, Galovich pointed out.

According to the CZP Commercial Director, production of zinc concentrate in Russia began to rise in the second half of 2006. By year end, Russian mining companies had produced 171,000 tons of zinc concentrate. Russia possesses 17% of world zinc reserves (approximately 45 million tons) and the two largest zinc deposits in the world (Ozyornoe and Kholodninskoe, Republic of Buryatia). Considering today's high prices for zinc and growing demand for the metal in the world, greater interest by investors in exploration of these deposits is expected, allowing a doubling of zinc concentrate production in Russia in the coming 5-7 years, the spokesman said.

Zinc consumption in Russia in 2006 reached 174,000 tons, compared with 900,000 tons annually in the Soviet days. The significant difference in consumption is due to decreased supplies to the military industry, Berislav Galovich explained. In Russia, most zinc (over 60%) is used for the production of galvanized steel, mainly for the automobile industry and construction. According to the CZP Commercial Director’s forecast, in comparison with 2006, construction volumes will increase by more than 50% by 2010, whereas automobile production in Russia will double by 2015. Beyond this, there is a substantial potential that zinc consumption in such areas as alloy production and usage in the chemical industry will increase.

Despite increasing zinc consumption within the country, Russia remains to be a zinc-exporter. This is due to production exceeding consumption (by 62,000 tons in 2006) within the country, as well as increased competition with Kazakhstan and Uzbekistan producers. Mr. Galovich noted that in 2006 Russian enterprises began to pay more attention to the export sales. Also there appears to be a trend to replace exports to the spot market with long-term contracts with foreign customers.

In his conclusion to the report, Berislav Galovich again drew the audience's attention to the main structural changes which have happened lately in the industry, as well as the investment requirements. In particular, among the changes he pointed out privatization in the industry, integration with the copper producers and the vertical integration of mines and smelters. According to the CZP Commercial Director, among the future investment requirements there are: greater availability of Russian investment capital, higher credit ratings of zinc producers, and readiness of foreign investors/partners to take part in mine and smelter construction projects, as well as partnership among producers aimed to improve project management, operations management and introduce technical innovations.