Primary aluminium market likely to remain in deficit for remaining of 2021 : Rashtra News
By Kunal Bose
Revenues and profits of aluminium makers here and also of global industry leaders such as Alcoa of the US and the Norwegian Norsk Hydro for the quarter ended September 2021 were well ahead of Street estimates.
The miss by analysts is because of insufficient appreciation of strategic work at a number of industry constituents in terms of building efficiency across production centres from mining of bauxite to refining of alumina to smelting of aluminium that prepared them to effectively capture the post Covid strong market fundamentals.
The industry enjoyed the benefits of high metal and alumina prices and also an impressive demand recovery in markets outside China. Strong global demand for smelter feedstock alumina works to the advantage of the majority government owned National Aluminium Company (NALCO) which is left with large export surpluses of the chemical after meeting its own requirements.
Aluminium companies outside China benefited not a little from the energy crisis in the world’s by far the largest producer of white metal that forced Beijing to ration supply of electricity to aluminium smelters and other metals producing units. The resulting Chinese restraint on production was a contributing factor to keeping aluminium prices at an elevated level.
An industry official says: “Market conditions through third quarter remained highly favourable for aluminium makers. At the same time, they continued to face challenges primarily from rises in energy and raw materials costs. For some items prices are up four to five times since year beginning. In the circumstances, the redeeming feature is the continuous improvement in operational efficiency of our three primary metal producers Hindalco, Vedanta and NALCO. That has proved to be a cost mitigating factor for them.”
Hindalco, which fully owns the world’s largest maker of value added aluminium products (VAAPs) Novelis, found its third quarter EBITDA at a record `8,048 crore, up 56% year-on-year (YOY). In its aluminium business here too, EBITDA rose to an all-time high of `3,247 crore or a margin of 42%, which managing director Satish Pai describes as “a near global industry record… Our product-rich portfolio strategy continues to deliver results across diverse market scenarios. It encourages us to keep building downstream asset base.”
This focus on VAAPs is adequately reflected in their sales (excluding wire rods) growing 36% to 86,000 tonnes helped by sharp domestic demand recovery. VAAPs sales at last quarterly count amounted to 25% of total metal business. In fact, in the case of copper too, Hindalco is pursuing a strategy akin to aluminium. Pai says: “The recent Ryker copper rod unit acquisition is in keeping with our downstream” development strategy.” Unlike primary metal, VAPs are significantly less prone to commodity price fluctuations and therefore, margins supportive.
NALCO’s performance in the first half of 2021-22, largely on account of achievements in the second quarter is unarguably unmatched for over a decade. Benefiting from high prices of both alumina and aluminium, the company registered a growth of 783% in first half net earnings to `1,095 crore in which the share of September ended quarter was a hefty `748 crore.
Steps taken by chairman Sridhar Patra to bring about improvements in operational efficiency resulting in higher first half output of 3.649 million tonnes (mt) of bauxite, 1.051mt of alumina and 228,000 tonnes of metal allowed NALCO to reap benefits of a boom in commodity prices. Alcoa says that in the second half, the average alumina price advanced to $312 a tonne from $274 a tonne in the corresponding half of 2020-2021. Progress in average aluminium price during this period was much sharper from $1,904 a tonne to $3,124 a tonne. Being among the world’s lowest cost producers of alumina and a major exporter of the chemical — last year exports amounted to 1.185 mt — NALCO enjoys the status of the second highest foreign exchange earner among all public sector undertakings.
Like its two peers in the industry, the country’s largest producer of aluminium, Vedanta group, made the highest ever quarterly metal at 570,000 tonnes and also alumina at 511,000 tonnes. The group is in several other commodity businesses. But its robust second quarter EBITDA of 40% margin was primarily supported by general commodity price upsurges and improvement in aluminium production.
In the meantime, world aluminium majors have all benefited from the price boosting global deficit in the metal and impact of energy supply constraints on Chinese production. In fact, to the delight of its shareholders, Alcoa’s adjusted EPS of $2.05 beat street forecast of $1.66.
Hindalco says in a presentation that while global aluminium production during January to September was up 5% to 50.6 mt in which Chinese share was 29 mt, consumption rose 12% to 51.5 mt with China alone claiming 30.1 mt, leading to a deficit of 0.9 mt.
The period is marked by continued aluminium demand improvement in markets outside China in key segments like building and construction, food and drinks packaging, consumer durables and industrial machinery. However, demand from the auto sector softened due to chip shortages. As is common with commodities, aluminium prices are down quite a few notches since hitting the highest at over $3,000 a tonne earlier this year since July 2008. Margins have been pared of late. But aluminium makers should not be complaining with the three-month LME rate staying well above $2,600 a tonne. Most observers think with global inventories being reduced and China’s average daily output every month since May continuing to fall, the primary aluminium market will remain in deficit for the rest of 2021. But in spite of power curbs affecting smelters, Chinese production in this year’s first ten months was up 6.5% at 32.37 mt. China is, therefore, likely to end the year with record production.
(A former FT correspondent, the author is now India correspondent for Euro Money publication, Metal Market Magazine)
Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.
Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.
( News Source :Except for the headline, this story has not been edited by Rashtra News staff and is published from a www.financialexpress.com feed.)
Related searches :