Domestic firms confident despite price crash

Vijay Trivedi in Mumbai

Aluminium players are a worried lot given the overall depressed global scenario. However, domestic players seem to be currently confident of a tide-over with relatively steady demand from the consumer industry.

Or else, how would one explain the four per cent rise in domestic prices of aluminium since May this year, even when the prices on the London Metal Exchange (LME) have slid down by eight per cent and is down 17 per cent since January 2000.

Current domestic prices, even when they have been four per cent higher since May this year is said to be around 6-7 per cent cheaper than the cost of landed material.

Currently, aluminium is quoted on the LME at around $1,400 per tn, down from $1,600 in May this year which gives the landed cost of around Rs 98,000 per tonne.

Against this the domestic prices are quoted at Rs 93,000 per tonne, up from Rs 89,000 in May this year. The ex-factory cost is said to be around Rs 85,000 per tn.

Confident or otherwise, all the three top Indian aluminium producers — Hindustan Aluminium Co (Hindalco), National Aluminium Co (Nalco) and Bharat Aluminium Co (Balco) — have upped their prices, especially on steadily rising demand from the local consumers.

One of the main reasons of increase in prices by these players are rise in other input cost, said one leading metal analyst.

This is despite the fact that the largest consumer industry — auto sector — is facing sluggish demand. The domestic demand for aluminium is seen also from power and construction industries that keeps the hopes ticking.

Further, domestic producers are gradually concentrating to produce value- added product like foils and low margin product like ingots.

Domestically, the electrical components sector (34 per cent) continues to dominate consumption, whereas in the developed countries, the automobiles sector, with 27 per cent, is the single largest consumer of aluminium, followed closely by packaging and construction.

However, in the international front, the US economy does hold the world aluminium industry in an iron grip. Being one of the largest producers and consumers of the metal, its a strong driver of price on the LME.

According to an industry source, the recent decline in aluminium prices indicates a mid-term correction. And price fall mainly due to selling of metal futures by many hedge funds in the international market. Global industry facing idle capacity problems and breakdown of USA based Penchinery’s merger talks with Alcan and Algroup also affected the sentiments.

Global demand is likely to be low on the back of US slowdown, which have strongly affected European, Japanese and other markets.
Recently, in the US additional power-related supply cuts have been announced and now it appears that most of the idled US capacity is unlikely to be restarted before 2003. It is expected by industry analyst that the bearish trend in aluminium to continue on LME. But, demand from Asian and Latam countries is expected to grow steadily.

One of the strategist of ASK RJ investment management, Mr Jignesh Shah said “The major devlopment in the domestic industry will be, ongoing consolidation in downstream sector and divestment of Balco”
Lastly, unlike the steel industry, Indian aluminium companies are not fighting for survival. Most are in fact making record profits and face no immediate threat to survival.