Aluminium Industry Update
Summary:
The overall improvement in the domestic economic scenario has had a
positive impact on thealuminium industry. This was evident in the
14% yoy increase in the aluminium productionduring Q1 FY2000 and a
corresponding increase in the metal prices, suggesting that
thehigher production was being completely absorbed. Internationally
the demand for aluminiumhas also increased as a result improved
economic conditions in the S E Asian countries.Therefore aluminium
prices on the LME, have risen by 20% since April. As the
domesticprices are linked to those on the LME, producers also
raised their metal prices in July.
Key
Statistics:
Aluminium production, at 0.146mn ton during Q1 FY2000, increased
by 14% over Q1 FY99. Thiswas primarily on account of a 38.6%
increase in Nalco’s production, after its smelterresumed
normal operations. Hindalco’s production was higher by 6.8%
yoy, the companyhaving produced 60,782 ton of metal in Q1 FY2000.
Indal and Balco also registered a 5.7%and 11.1% increase in
production respectively.
Aluminium
Production (in ton)
|
Company
|
Production
|
%
chg
|
| |
April-June
99
|
April-June
98
|
|
|
Hindalco
|
60782
|
56934
|
6.8
|
|
Nalco
|
49405
|
35635
|
38.6
|
|
Indal
|
10723
|
10146
|
5.7
|
|
Balco
|
23841
|
21468
|
11.1
|
|
Malco
|
2290
|
5537
|
-58.6
|
Aluminium
prices:
LME aluminium prices have increased from US$1200/ton in April to
US$ 1440/ton in Marchbacked by higher demand from the S E Asian
countries. Average metal prices during Q1FY2000 were approximately
similar to the metal prices in Q1 FY99. Alumina prices in
theinternational markets have also hardened, not only because of
higher global aluminiumdemand, but also because of the shortage of
alumina caused by a blast at the Kaiseralumina refinery. The
refinery has a capacity of 1mn ton and is expected to
remainunoperational for atleast a year. Alumina prices are
presently ruling at US$ 220/ton ascompared to US$ 164/ton ruling in
March, and an average of US$ 150/ton in 1998.
Average
aluminium prices on the LME(in US$/ton)
|
Month
|
LME
prices
|
|
March
|
1182.0
|
|
April
|
1278.6
|
|
May
|
1257.6
|
|
June
|
1315.7
|
|
July
|
1404.5
|
|
August
|
1422.5
|
Quarterly
results:
The aluminium industry recorded a 12.7% increase in sales
revenue and 14% increase innet profit during Q1 FY2000.
Hindalco’s sales and net profit grew by 14.5% yoy and10.3% yoy
respectively driven by volume growth and better product mix.
Nalco’s salesrevenue and net profits increased by 23.2%
primarily on account of higher metal sales.Indal’s revenues
declined by 6%, while its net profit increased by 8.7% as a
resultof lower incidence of operating and interest
costs.
Global events:
The aluminium industry witnessed one of its biggest mergers
when the worlds secondlargest aluminium producer Alcan with a
capacity of 1.6mn ton decided to merge withPechiney of France and
Alusuisse of Switzerland. The combined entity would have a
capacityof nearly 3mn ton, which would approximately constitute 12%
of the world aluminium supply.The merger will result in pricing
power, cost savings and clear economies of scale. Alcoahas also
launched a hostile takeover bid over Reynolds.
Outlook:
Aluminium consumption is expected to register a double
digit growth rate inFY2000 on account of a healthy demand from the
electrical, transportation and housingsectors. The uptrend in
aluminium prices has also improved the pricing situation in
theindustry. In response to the rising LME prices, Hindalco and
Nalco have already increasedtheir metal prices by Rs3000/ton in
July. Nalco and Indal will also benefit from higherinternational
alumina prices since its exports around 0.35mn ton annually.
Therefore yoygrowth in net profits for Hindalco and Nalco during H2
FY2000 should be better than in H1FY2000. Indal, which mostly sells
downstream products, may face competition from Hindalcowith the
latter having made an aggressive foray into value added
products.
