Korea Zinc, Will It Benefit from the Ongoing Raw Material Rally?

Non-Ferrous Metal Price Strength Boosts Q2 Earnings Expectations
Non-Ferrous Demand Likely to Increase Further if China’s Economy Improves
Raw Material Supply Constraints Raise Possibility of Price Increases

Amid forecasts that the recent rally in raw materials will continue, investors are focusing on whether Korea Zinc, which smelts non-ferrous metals and produces raw materials such as gold, silver, and copper as by-products, can benefit from the special demand. The securities industry expects that if the price of non-ferrous metals continues to rise due to supply stagnation and improvement in the Chinese economy, Korea Zinc could raise its historically low valuation levels.

According to the Korea Exchange on the 31st, Korea Zinc's closing price on the 30th rose 18.86% from the year's low, reaching 517,000 KRW. With expectations of continued earnings improvement, securities firms have set an average target price of 640,000 KRW, indicating a potential additional increase of about 24% from the previous closing price.

Earlier this year, Korea Zinc announced its sales plan, presenting figures exceeding last year's targets, including 650,000 tons of zinc, 450,000 tons of lead, and 2,108 tons of silver. Subsequently, Korea Zinc reported a record quarterly domestic zinc sales volume of 60,305 tons in the first quarter. The industry expects that sales in the second quarter will also surpass market expectations. Lee Gyu-ik, a researcher at SK Securities, stated, "Considering that competitors faced disruptions in smelter operations from March due to deteriorating business conditions, the domestic zinc sales volume is expected to continue increasing after the second quarter." He added, "Additionally, sales volume will rise due to the peak season effect, and the reduction in losses from subsidiaries will maintain the earnings improvement trend." He further noted, "Recently, the company announced the acquisition of 150 billion KRW worth of treasury shares and plans to cancel 100 billion KRW worth of shares. Given the significantly reduced volume available in the market due to shareholding competition, the buyback and cancellation of treasury shares could have a meaningful impact on stock price appreciation."

Expectations that robust demand for non-ferrous metals driven by the improvement in the Chinese economy will contribute to sales in the second half of the year are also acting as positive factors for the stock price. In particular, investment sentiment toward non-ferrous metals is strengthening due to China's real estate support policies. Ok Ji-hoe, a researcher at Samsung Futures, explained, "While real estate stimulus policies are being introduced across China, the Shanghai government, the most economically developed first-tier city, has eased housing purchase restrictions. As Shanghai, known for its strict real estate regulations, significantly relaxes these rules, expectations are rising for increased housing demand, which has driven up non-ferrous metal prices."

Baek Jae-seung, a researcher at Samsung Securities, also noted, "The rise in non-ferrous metal prices is progressing rapidly. During the COVID-19 period, new mine investments were curtailed, extending the time required for additional production, and the costs necessary for mining have reached a steeply increasing point." He added, "Limited supply is expected to continue for the time being, leading to strong second-quarter earnings for non-ferrous metal companies. Such earnings improvements in the core business, rather than new ventures, will contribute to raising historically low valuation levels to some extent."