Spurt in metal prices to boost margins, but global uncertainty may act as a dampener.
Domestic base metal companies are expected to register higher profits in the calendar year 2011, as prices of metals like aluminium, copper, nickel, among others, will see an upward trend on the back of higher demand from emerging economies like India and China, rising crude oil prices and greater economic activity in the United States.
Companies like National Aluminium Company Ltd, Vedanta, Hindalco, Hindustan Copper, among others, will see higher operating margin due to the spurt in metal prices.
“We expect all base metals, especially copper, nickel and aluminium, to witness an upward trend in 2011 on rising demand from emerging economies,” said Aurovinda Prasad, research head (commodities and currency) of Karvy Comtrade.
He added rising crude oil prices, sound economic recovery of the US and weak dollar would be supportive of this trend. About the impact on domestic metal companies, he said profitability would be higher for firms in India due to better realisation.
International research report also supports the view of greater momentum in base metals at the London Metal Exchange. A recent Morgan Stanley report says base metal fundamentals look strong in the coming year, with an expectation of higher prices in most of the counters.
More From This Section
It is particularly bullish on copper and mentions that though the metal currently trades around its all-time high, factors like strong demand, low inventory and the on-going supply constraint will push prices further.
Copper prices have risen around 30 per cent from $7,100 a tonne in January to $9,400 in mid-December. “Prices have seen an upward trend in the recent past and we expect it to reach around $10,000 a tonne in 2011 on rising demand. This will, of course, give us higher operating margin in the medium term,” a top official of Hindustan Copper said.
The public sector copper manufacturer, which uses less amount of furnace oil compared to its global peers, would also be protected from the rise in crude prices, he added.
Similarly, aluminium may also breach the $2,500-per-tonne mark in 2011. According to the Armored Wolf, a US based research firm, prices are expected to rise next year mainly on account of fall in inventory levels and rising demand from China, which is world’s largest producer and consumer of the metal.
“Though there was some kind of dip in aluminium prices in the recent past, another round of correction is less expected. We hope a price range of $2,400-$2,500 a tonne on the back of rising crude oil prices and sound demand from sectors like aviation, transportation, and electronics among others,” said Mukesh Kumar, chief operating officer of Vedanta Aluminium Ltd.
Analysts also said rising crude oil prices would act in favour of domestic aluminium manufacturers. “As Indian aluminium manufacturers are more dependent on coal than on oil for power production, they are protected from the rise in prices of the raw material,” an industry expert said.
However, many analysts see a lot of global factors derailing this positive sentiment.
“All depends on China, as far as the base metal is concerned. The central bank has already raised interest rates in the recent past and is expected to do it in the near future to control liquidity. So, this may impact the demand from the country,”an analyst with a Mumbai-based brokerage firm said.
He said Europe would act as a dampener next year and recovery in the US was still feeble. “Most of the metal producers in India are integrated producers with their own captive mine, cheap raw metal and power production units, etc. However, it is still early to predict higher profit margin next year, as challenges persist in the global economy,” he added.