The demand for aluminium in both domestic and international markets will sustain the price of the commodity at its present levels of around $2,300 per tonne at the London Metal Exchange (LME), and it is likely to see a rise of about 4.5 per cent to 8.6 per cent, to $2,400-$2,500 per tonne in the next two quarters. The rising input prices of coal and petroleum products will support the present trends despite the high level of inventory in the London Metal Exchange.
“While domestic demand is projected to grow 8 per cent this fiscal, the international demand may grow 4 per cent. Such a spurt in demand on the back of a tangible improvement in the economic conditions will drive prices on the LME,” Ansuman Das, director (commercial) of National Aluminium Company Ltd (Nalco) said.
Key verticals like power, automobile, packaging and construction sectors are driving growth in the domestic economy, and transport and packaging are the major contributors to growth in the international market, he said.
Aluminium prices were severely hit, to reach around $1,800 per tonne in August, 2009 following the slump in demand. However, prices have stabilised since and reached $2,400 per tonne during the present rally in the commodity prices.
On these price fluctuations, Das said, “Commodity bourses are reacting to any bad news or things pertaining to the revival of global economy more sharply than they used to do during the pre-recession period. So, these price fluctuations are temporary.”
He, however, said that rising prices of coal and petroleum products would definitely have an upward pressure as these are the key inputs in the aluminium manufacturing process.
While thermal coal prices in Asia have reached around $100 per tonne on rising demand and tight supply, petroleum prices are now hovering around $85 a barrel on greater economic activity.
Referring to aluminium stock level in LME, Das said, “Most of the 4.5 million tonne inventory level are part of long-term financial deals and not for immediate physical delivery. Unless stock amount for physical delivery increases in LME, this will have lesser impact on pricing.”
A top executive of Vedanta Aluminium has similar view on this matter. “There is an uptick in demand both in the domestic and international market. Though there is capacity addition by major aluminium producers in India and resumption of manufacturing in earlier closed down units, present demand will suffice to absorb the added capacity,” he said.
However, analysts have a different view. “The present inventory levels at LME is high and indicates that industry majors are waiting for high prices. Also, resumption of manufacturing from shut down facilities is likely to have the effect of overcapacity for the next one to two years,” Amber Dubey, director, KPMG, said.
He said, China, with the highest smelting capacity, had closed down about 15 per cent of its smelters during the recession. It has reopened most of them.
Referring to the export outlook for India, Dubey said, “There is presently a frenzy of capacity addition in India, with most of these capacities being commissioned by 2015. So, India will remain as a net exporter of both alumina and aluminium.”
He also said that most of the aluminium companies in India would benefit from this rising demand due to ample availability of bauxite, low operational cost and vertical integration.
