Aluminium demand in both domestic and international markets will sustain the price of the commodity at its present level of around $2,300 a tonne at London Metal Exchange (LME) and is likely to see an increase of around 4.5-8.6 per cent to $2,400-$2,500 a tonne in the next two quarters. Rising input prices of coal and petroleum products would support the trend despite high inventories on the London Metal Exchange.
“While domestic demand is projected to grow 8 per cent this financial year, international demand is expected to grow by 4 per cent. Such spurt in demand on the back of tangible improvement in the economy will drive prices on LME,” Ansuman Das, director (Commercial) of National Aluminium Company (Nalco) said.
Key verticals such as power, automobile, packaging and construction sectors were driving growth in the domestic economy and transport and packaging were major contributors to growth in the international market, he said.
Aluminium prices had been hit to reach around $1,800 a tonne in August 2009, due to a slump in demand. However, prices have stabilised since and reached $2,400 a tonne during the current rally in commodity prices.
Talking about these price flucuations, Das said, “Commodity bourses are reacting to any bad news or things pertaining to revival of global economy more sharply than they used to do in pre-recession period. So, these price fluctuations are temporary.”
He, however, said that rising prices of coal and petroleum products would definitely put pressure as these are the key inputs in the aluminium manufacturing process.
While thermal coal prices in Asia have reached around $100 a 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-tonnes 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 at Vedanta Alumimium has similar view on this matter. “There is an uptick in demand both in 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 on this matter. “Current inventory level at LME is high and indicates that industry majors are waiting for high prices. Also, resumption of manufacturing from shut down facilties is likely to have a overcapacity effect for next one to two years,” Amber Dubey, director, KPMG said.
He also said that China, with higest smelting capacity, had closed down around 15 per cent of its smelters during recession of which most of them were reopened.
Referring to export outlook for India, Dubey said, “There is currently a frenzy of capacity addition in India, with most of these capacities to be 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 be benefitted from this rising demand due to ample availability of bauxite, low operational cost and vertical integration.
