Non-ferrous metals: Losing sheen

The non-ferrous metal players have had a tough quarter due to declining prices of aluminium and zinc.

The December 2007 quarter has been difficult for the non-ferrous metal players, including Hindalco, Nalco and Sterlite, as the prices of metals such as aluminium and zinc have declined on a yearly basis.

Moreover, the copper divisions at Hindalco and Sterlite are grappling with reduced treatment and refining charges in Q3 FY08 due to the global shortage of copper concentrates.

To add to the woes of non-ferrous companies, the rupee's 11-12 per cent rise against the dollar since the beginning of the calendar year would reduce their realisations in the local currency.

Meanwhile, the average price of aluminium on the LME has been $2,453 a tonne this quarter compared with $2,719 a tonne in the December 2006 quarter.

The demand for aluminium has been undoubtedly strong in the Asian region as a result of the construction boom. But the sluggish demand, especially in North America, has led to lower prices.

The price decline was even more pronounced in the case of zinc, as it hovered around $2,669 a tonne since the beginning of Q3 FY08 against an average price of $4,193 a tonne in the December 2006 quarter.

To counter this weakness, the domestic non-ferrous players have initiated cost-reduction measures and finalized long term contracts with clients.

The estimated spot realisations from copper treatment and refining charges are 12-16 cents a pound compared with 30 cents a year earlier, due to a global deficit of copper concentrates.

The Sensex has gained 10.8 per cent since the beginning of this quarter, whereas Nalco is up 41.8 per cent, Hindalco is up 15.7 per cent and Hindustan Zinc is down 6.4 per cent.