India Ratings has kept the outlook stable-to-negative for non-ferrous mining and metals for next fiscal as it expects a global over-supply risk but stable margins for firms in the sector.
Aluminium, copper and zinc are the major contributors of the non-ferrous metals mining sector.
"The rating outlook for mining and metal companies remains stable on expectations of stable margins. This is partly because these companies are able to charge a physical premium, given the oligopolistic nature of the metals and mining market in India," the credit rating agency said in a statement.
Moreover, if the Indian rupee continues to remain at the current Rs 62 per 1 USD level, it will likely provide some cushion to the mining firms, India Ratings said but cautioned that margins of larger players can get negatively impacted if the rupee appreciates to 60 per US dollar.
Talking about the aluminium sector, it said that global over-supply situation is unlikely to correct for the sector in the short term though about 2 million tonnes (MT) of high cost smelting capacity has closed down in last 12 months and the trend is expected to continue.
This is because 3.2-3.8 MT capacity, which is more efficient in terms of cost, is likely to come up. The increase in cost-efficient capacity "may prevent the prices (of aluminium) from exceeding USD 1,800 per tonne", it said.
It added that potentially the global aluminium cost curve may recalibrate marginally downward.
Talking about domestic aluminium companies, India Ratings said that their operating profitability will remain challenged due to cost inflation and lower physical premiums in the next fiscal.
"Cost inflation expectation is backed by inflation in coal and furnace oil prices. Bauxite availability is likely to be strained and could pressurise the operating margins of non-integrated players in FY'15," it said.
Moreover, key sectors driving aluminium growth, such as construction, power, automobiles and packaging are unlikely to generate robust demand in FY'15, it said.
Talking about Copper, India Ratings said it anticipates a global over-supply risk to persist in the near term and reduced demand from China in 2013 and historically high systemic inventory levels of the metal will keep its price suppressed.
However, an uptick in demand from the US and Europe could support copper price above the current level, it said, adding that Indian companies are likely to benefit from a surplus in concentrates in China and consequent stable treatment charges and refining charges (TCRC) in FY15.
Integrated players such as Hindustan Copper are better placed currently as India is largely dependent on imported ore, it said.
