Entry of institutional investors into aluminium would push up prices of the metal further up, believes D Bhattacharya, managing director, Hindalco & vice-chairman, Novelis. In a conversation with Dilip Kumar Jha, he also said rising prices would help Hindalco. Excerpts:
How will hedge funds’ investment in aluminium affect Hindalco Industries?
With the funds investing in aluminium, the supply in the physical market gets constrained as this aluminium gets locked in warehouses.
Similarly, other investment avenues such as exchange-traded funds, being talked about, need physical back up of aluminium inventory. Once set up, it would further accentuate the shortage in the physical market.
As a result, aluminium prices and regional premiums should both increase. This will help aluminium producers.
How has the raw material cost pressure affected Hindalco?
In an inflationary scenario, all industries are facing cost pressures and aluminium industry is no exception. In the aluminium industry this pressure primarily is on account of increase in alumina, power and crude derivatives like CP coke, fuel oil etc. Hindalco is also facing the cost pressure but this pressure will be relatively lower than that on non-integrated producers which buy alumina and power.
Will high prices reflect on the company’s financials as has been indicated in case of Novelis?
The cost push creates a floor for aluminium prices. With a sharp rise in input and energy prices the cost curve for aluminium has shifted northwards. With this (cost push) and robust demand, prices of aluminium are holding strong. Novelis is not affected by aluminum price increase as for it, aluminium is a pass through.
For example, for a particular product, the selling price is combination of aluminium price (LME) and the premium for that product (fixed in dollar terms). So, Novelis’ margin is the premium (as above) after deducting the processing cost.
