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Aluminium: Price outlook bright

Suresh Krishnamurthy

Sharp fluctuations in the international prices of aluminium has been the norm in the recent past. Prices of aluminium broke through the $1,600 per tonne at the London Metal Exchange in September 2000 only to come down sharply to the levels o f $1,400 in October 2000. Till end December 2000, prices remained fluctuating between $1,450-1,550 levels.

The year 2001 started on a bullish note with prices surging past the $1,700 per tonne. However since the beginning of February, prices have once again dipped sharply to the levels of $1,550 per tonne.

Given the spectre of a recession in the US and a slowdown in the demand already rapidly developing, the outlook for most non-ferrous metals is not bright. However, among the metals the outlook for aluminium is much better. This is because there are facto rs such as the rising power costs in the US Northwest that are creating supply-side bottlenecks.

These factors appear to be favouring firm price trends for aluminium in the international markets. Infact, Pechiney, a global aluminium major, has projected an average price of $1,600 per tonne for aluminium in 2001.

Overall, the outlook on the prices for the Indian companies appears bright. Firm international prices and a depreciating rupee increases the protection factor for the aluminium producers.

Another positive factor for Indian companies is the improved outlook for exports. Rising power costs in the Northwest of US has lead to a shutdown of a few smelters. This will allow Indian companies to fill in the supply-demand gap in the export markets.

Exports are also likely to prove more lucrative to the Indian companies given the discount at which the metal is being sold in the domestic markets.

However, despite the firm trend in international prices and the improved outlook for exports, Indian companies are likely to increase prices in the domestic markets only in the event of an increase in demand.

Although aluminium demand is estimated to increase annually at the rate of 7 per cent, any slowdown in key consuming sectors such as power, consumer goods and transportation will lead to sluggish demand growth and consequently maintain a tight leash on p rices.

Notwithstanding the concerns regarding domestic demand, the outlook continues to be rosy on the profitability front for the Indian companies. In the first nine months ended December 2000, aluminium output has increased only 4.6 per cent. Profit growth, h owever, has been much better due to the firm trends in prices. Similar trends are likely in the next year for companies such as Hindalco and National Aluminium Company.