Aluminium prices may stay positive in second half of FY18: ICRA

The International prices of aluminium have sharply risen by over 10 per cent in last month

The international prices of aluminium have sharply risen by over 10 per cent in the past month following a favourable demand-supply balance drives and the sentiment on aluminium prices during the second half of financial year 2018 remains positive, a report said on Monday.

The International prices of aluminium, quoted at the London Metal Exchange (LME), have sharply risen by over 10 per cent in last month, after posting an increase of four per cent in the preceding six months.

The expectation was derived from the widening deficit in the global demand-supply balance following key regulatory developments in controlling "illegal" and "polluting" aluminium production in China, the report said. “Lower production in China is likely to push the country into a marginal deficit in 2017, and it is likely to widen further in 2018, if the authorities remain committed to the regulations. This in turn would lead to a large widening deficit globally, as 2017 deficit is likely to be over two per cent of the global consumption. "The rest of the world has remained in deficit in the past few years, meeting the demand from Chinese exports, and no new large-scale capacity is currently in the pipeline," ICRA Senior Vice President Jayanya Roy said.

ICRA had expected a possibility of such an increase in prices in the second half of the current calendar year, and its last two quarterly research reports on the primary non-ferrous metal industry too had been positive on aluminium prices.

A joint notice was issued in April this year by China's National Development and Reform Commission (NDRC), Ministry of Industry and Information Technology (MIIT), and Ministry of Environmental Protection (MEP) on streamlining primary aluminium production.

The notice called for closure of Chinese capacities, which were "illegally" built without necessary regulatory approvals being in place.

Such capacities included both the then existing as well as the upcoming capacities, which were set up or were being set up without adherence to the existing rules framed by the Chinese government, it said.

Additionally, in February 2017, China finalised its "Air Pollution Control" regulations, which came into effect from March 1, 2017.

The new regulations are expected to force aluminium smelters, in provinces around Beijing, to cut output by nearly 30 per cent in the winter months of November through March.

"With the global aluminium inventory on a consistent decline in the last two years and the trend likely to continue, global supply is likely to lag demand. Under the given scenario, the sentiment on aluminium prices during the second half of FY2018 remains positive," Roy said.