Fabio Carvalho came to China in 2007 to learn about the Chinese market and develop business for Brazilian metals firm Votorantim Metais. Votorantim acquired US-based USZinc in 2008, and Carvalho was moved into the general manager role of the USZinc operation in China in 2009. He spoke to CHINA ECONOMIC REVIEW about the local zinc market.
Q: What is Votorantim’s presence in China today?
A: Votorantim itself is not doing much business here. We are trading some zinc and nickel in China, but we don’t have any operations like mining or smelters here. But USZinc has a manufacturing plant in Jiangsu province which produces zinc oxide. It’s basically a recycling facility for zinc. Business has been great. We’re in our second year, and we are already running at full capacity. Next year we plan to double our current capacity.
Q: What is the target market here for your product?
A: Our major targets here are multinational and domestic tire manufacturers. We also supply electronic and chemical companies.
Q: There’s been a fair amount of M&A activity in the zinc industry recently. What is Votorantim’s strategy?
A: In terms of zinc, we want to become one of the top three producers in the world. We definitely need to develop in China, which is responsible for 30% of global production and consumption of zinc. So we have this USZinc business as one of our first steps here, to understand the market and establish a platform. Of course we plan to grow here, not just on a zinc oxide basis, but also in the zinc metals segment.
Q: What is the investment environment like for zinc producers?
A: China is restricted in terms of foreign investment in zinc mining and smelters. If you want to do any zinc investment in those areas, you need to enter into a joint venture with a local enterprise. China has some very strong producers here, so we are trying to figure out how to fit in. One area in which there may be opportunities for cooperation is zinc concentrate. While China has lots of smelters, it lacks sources of zinc concentrate.
Q: Some are predicting a collapse in zinc prices as soon as 2011. What’s your opinion?
A: It’s difficult to predict anything. The prices are too high and the fundamentals are not supporting this level, so a lot of people are predicting an adjustment. But it’s difficult to say when or how much. What’s driving these predictions is that, although demand is recovering, supply still exceeds demand. Even so, we are expanding our smelter in Peru to 320,000 tons a year.