Non ferrous metal prices are expected to hold steady at higher levels during the rest of this financial year, ICRA said in a report here.
"The non ferrous metal prices are currently buoyant after increasing by over 9-10 per cent in the last one and a half month and they are expected to hold steady at elevated levels during the rest of FY18," ICRA said in a report here.
Accoring to ICRA, while this augers well for the players as an improvement in realisations on metal sales will help domestic non-ferrous metal players register an improvement in business returns in FY18 compared to FY17.
However, the magnitude is likely to be limited by a simultaneous increase in input costs.
"Despite the sharp increase in metal prices, operating profitability of the domestic primary non-ferrous industry is likely to be capped in FY18 by cost pressure on some of the key inputs in production," ICRA senior vice-president and group head, Corporate Sector Ratings, Jayanta Roy said.
The impact of rising input costs is expected to be higher for the non-integrated players manufacturing aluminium, as there has been a sharp increase in prices of alumina, which is a large cost driver in production of the metal, ICRA added.
As for the domestic demand-supply scenario, consumption of the three key non-ferrous metals, including aluminium, copper and zinc, registered 6-7 per cent growth in the first quarter of FY18.
This coincided with a period when domestic production of aluminium grew at a higher annualised rate of 8 per cent and there was a large domestic surplus of aluminium, which had to be exported, ICRA pointed out.
Going forward, it said, while consumption of aluminium might to improve in FY18, surplus availability will persist, as domestic capacity is high and manufacturers are expected to operate the plants at a high asset utilisation level.
This would lead to large export volumes, however, it will have an impact on margins, as export realisations are at a discount compared to domestic prices, ICRA said.
On the other hand production growth of copper and zinc were muted due to capacity bottlenecks.
Therefore, even as the domestic market for these two metals continued to remain in surplus, with increasing consumption they are being absorbed in the country.
Globally, the demand for aluminium and zinc in calender year 2017 is expected to overshoot supply, ICRA said.
For copper, demandsupply is expected to remain in balance, therefore, off-take risks of domestic exporters for all non ferrous metals would remain limited, it added.
ICRA expects the deficit in the global aluminium market to widen in CY17 as a result of at least 4 million tonnes of capacity cutbacks in China.
The deficit in the zinc market is expected to remain at the level of CY16, notwithstanding some improvement in supplies.
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