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NALCO: Facing the threat of dropping aluminium price

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Aluminium majors in India like Nalco and Hindalco are under tremendous market pressure due to dropping aluminium price in the London Metal Exchange (LME) and higher production costs. Nalco is taking up a number of strategies to cope with the growing cost and declining price and profit margin.

Nalco is the third-largest producer of aluminium in India whose tenders serve as a global benchmark in aluminium market. It has been revising prices of its range of products time and again to be in tandem with the prevailing LME prices. Nalco is into a price raising spree to cope with the continuous losses. Reuters had reported that Nalco had sold 12,000 metric tons of aluminum ingots in May at a $162 per ton premium over the average LME cash price. During the last week of May, it raised prices by Rs 4,000 per ton in the domestic market, taking it to Rs 142,700 per ton.  The decision came after Nalco’s net profit had declined 7.6 percent in the first quarter. The decline was attributed to higher fuel and raw material costs and lower prices on the LME. In the month of June, NALCO sold 4,500 tonne of aluminium ingots at about $180 per tonne premium over the average LME cash price to a European buyer. By the end of the same month, it has sold 8,000 tonnes of aluminium ingots at close to $203 per tonne.
Prices of both ferrous and non-ferrous metals continued to fall during May and June in the face of an uncertain global economic scenario in Europe and China and also due to the mounting value of US Dollar against a majority of currencies. During the 1st week of June, the light metal shed another three per cent to fall to $1937 per tonne, lowest on the LME in the past two years. The present price level of aluminium is around USD 1,850 per tonne and that is pretty alarming for the aluminium producers.

Usually the average domestic aluminium price is around Rs 1, 30,000 per tonne and the LME price is around $2,000 (Rs 1, 11,280). Since, now the LME price is coming down to $1937 per tonne, Nalco is offering discount of around Rs 2,500 on domestic published aluminium prices to boost the sales and to cope with the continuous losses. Nalco Chairman Mr. Bagra recently said that Aluminium price may rise by up to 10% in 2-3 months to USD 2,000 per tonne.  The targeted price however, should be USD 2,300-2,400 for the rest of the period, which looks impossible to happen. According to him, Nalco also plans to produce electricity to cope with the shrinking profit margin due to the climbing energy costs and dropping aluminum prices.  It plans to build nuclear and thermal plants in the next five years, to cater to the growing demand for power in the South Asian country. The company currently operates a 960- megawatt plant to run its smelter in Odisha.
The analysis of most of the broking houses indicates a bearish outlook on the performance of aluminium companies like Hindalco and Nalco due to shortage of coal along with the low aluminium price. Coal import has also become costlier because of a weak rupee. Since, the LME price is coming down so low; there is hardly any scope for raising the price in the domestic market. It is assumed that Nalco’s profit margin will be under pressure till the time market condition improves.  In the near-term, there is hardly any factor in sight that can revive the aluminium price and influence the growth of the sector. So, it is the time to wait and watch what Indian biggies are up to during this crucial juncture.

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1 comment

  1. Taha

    Hi, Both Hindalco and Nalco enter in to both long term (index linked) and short term (spot rate) contracts. I am trying to study the short term contracts of NALCO which are not more than 400,000 tpy of Alumina exports. Details like tenders and which companies have managed to win NALCO’s tenders and on what basis. Will appreciate if I can get something beneficial to research upon.

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