Aluminium exports jump on the back of global price rise, Rusal sanctions & oversupply in the domestic market
Aluminium exports from the country increased by 36 per cent in 2017-18, aided by global demand, which outstripped supply. A spurt of 21 per cent in the commodity’s prices on the London Metal Exchange (LME); US sanctions on UC Rusal, one of the largest producers; and over-supply to the domestic market helped exports to rise in the last financial year and the trend is expected to continue in 2018-19.
Figures of the Union commerce and industry ministry show in volume terms aluminium exports rose from 1.22 million tonnes (mt) at the end of 2016-17 to 1.66 mt in 2017-18. In the comparable period, imports of the white metal tanked 14.7 per cent to 360,000 tonnes. India’s production of primary aluminium grew 21 per cent year-on-year (y-o-y) in the last financial year, going past the 15.5 per cent rise in 2016-17.
South Korea accounted for the largest export of Indian aluminium products (31 per cent), followed by Malaysia (30 per cent) and the US (11 per cent).
Impact of rising prices
Primary aluminium producers were buoyed by unprecedented price swings on the LME.
- Prices of aluminium surged by 21 per cent in 2017-18 to average $2,045 per tonne.
- Aluminium prices were also strengthened by a rise in input costs as prices of key ingredients such as alumina, caustic soda, petroleum coke and coal tar pitch shot up during the period.
- Aluminium prices had been moving up since December last year after the Chinese government cracked down on polluting smelters.
- Later, prices came down after the US Treasury announced a 10 per cent levy on imported aluminium.
- However, aluminium rebounded at the beginning of 2018-19 with the US announcing sanctions on UC Rusal, the second-largest producer of aluminium (outside China), accounting for 6 per cent of the global production. The protectionist duties imposed by the US created fears of a shortage in global supplies.
Why is this important
The rise in aluminium production was on account of better operational efficiencies owing to enhanced capacity utilisation at existing smelters backed by the rising aluminium prices. According to a report by CARE Ratings, India’s aluminium production is forecast to be stable at 3.42 million tonnes in this financial year.
Stock to be impacted
The factors presented above indicate a stable demand backed with ample capacity & rising prices for aluminium manufacturers thus impacting them favourably
Hindalco (CMP: Rs 226, MCap: Rs 50783 crs, 5.8x FY2020E EV/Ebitda)
National ALuminium Co Ltd (CMP: Rs 63.5, MCap: Rs 12274 crs, 4.3x FY2020E EV/Ebitda)
Vedanta (CMP: Rs 231, MCap: Rs 85867 crs, 3.9x FY2020E EV/Ebitda)