Short term outlook challenging for Hindalco: Birla

Hit by oversupply and depressed prices of metals, the outlook for leading aluminium and copper producer Hindalco is "challenging" in the short term, its Chairman Kumar Mangalam Birla said today.
Besides, high imports will continue to impact sales of the flagship company of the USD 41 billion Aditya Birla Group, he added.
Speaking at Hindalco's annual general meeting, Birla said: "Notwithstanding the strong operational performance, the short term outlook is challenging given the structural oversupply and depressed pricing scenario. The sharp increase in imports will continue to impact sales."
However, on the positive side, he said demand in India is expected to be strong, as the firm sees an improved outlook on industrial and infrastructure growth.

"The government's thrust on the power sector works well for the aluminium and copper industry. We are also sharpening our thrust on downstream value added products in India, as these yield better realisation," Birla noted.
On the aluminium industry scenario in 2015-16, he said the industry witnessed significant challenges as the average realisations crashed.

The average aluminium London Metal Exchange (LME) price was 16 per cent lower than the previous year, while the premium was down by 68 per cent as compared to that of 2014-15.
Regardless, aluminium demand continued to remain strong. The cost deflation, especially energy costs coupled with depreciation of several local currencies vis-a-vis USD, resulted in a sharp decline in the aluminium cost curve.

"This exerted a lot of pressure on LME prices. Currently, though the prices appear to have bottomed out. In the Indian context, the demand scenario has been encouraging. The expected economic turnaround and improving industrial activity bode well for Hindalco," Birla said.
The decline in coal prices in India was a major relief. Depreciation of the rupee also helped Hindalco to an extent. However, the overcapacity in China and the consequent flooding of aluminium in the Indian market severely upset the balance, as imports surged in 2015-16, he added.
In the case of copper, Birla said 2015 was a challenging year. Refined copper consumption growth declined sharply from 5.5 per cent in 2013 and 4.6 per cent in 2014 to 1.6 per cent in 2015.

The global refined copper consumption in 2015 calendar was around 22 million tonnes (MT). This fall in consumption growth trajectory was primarily on account of slower growth in Chinese demand and de-growth in Japanese consumption, he said.
Copper demand is facing challenging times as China is moving away from an investment-led to a consumer-driven economy.
Birla opined that the expected revival in domestic demand,
especially in the power and housing sector, portends well for Hindalco.
Given the improvement in Indian GDP, co-product prices are expected to be encouraging, which should bolster the copper business. With the increasing thrust on the agriculture sector, the demand for DAP and sulphuric acid should rise too, he added.

Talking about the company's performance, Birla said the aluminium business posted its highest ever production, crossing the 1 MT mark for the first time.
Hindalco's three greenfield projects -- Utkal, Mahan and Aditya Aluminium -- have now ramped up to their full capacity.
The copper business, a strategic component of Hindalco's portfolio, continued to deliver robust operational and financial performance, supporting the Indian business.
The company registered a consolidated turnover of USD 15 billion.
On Novelis, its wholly-owned subsidiary, Birla commented it faced significant head winds as the firm continued to ramp up production from the newly commissioned facilities.
A sharp decline in regional premium (which unlike the LME cannot be hedged) resulted in a metal price lag that adversely affected its financial performance throughout the year.

Operationally, Novelis clocked a strong performance. This was primarily achieved on back of a sharp focus on the product portfolio, which resulted in a higher realisation, he noted.
Going ahead, Birla said Hindalco's thrust will be on operational excellence and increasing the productivity of new assets, cash conservation and de-leveraging.
The firm has already secured around 25 per cent of its coal requirement in the recently concluded coal linkage auctions, he added.
This, along with the existing linkage for Renusagar power plant and captive coal mines, will provide adequate coal security and good visibility to power cost for aluminium production, he noted.