Nalco rides on London Metal Exchange gains, sees room for more price hikes

India’s primary aluminium producers, particularly National Aluminium Company (Nalco), gained on account of a rally in global aluminium prices over the past week before a correction on Tuesday.

Aluminium prices on the London Metal Exchange (LME) peaked at $2,452 per tonne for the cash buyer (as of April 23). 

After touching seven-year highs, aluminium prices on the LME have tumbled 8.7 per cent after the US softened its stand on United Company Rusal Plc, allowing it more time to comply with the sanctions imposed on it. 

The US treasury has announced it is prepared to lift the sanctions on Rusal if its major shareholder and Russian tycoon Oleg Deripaska cedes control of the company. 

The announcement would allow Rusal to liquidate large quantities of aluminium, which had stockpiled due to US sanctions.

Buoyed by the earlier rally in aluminium, Nalco has hiked prices of its products by Rs 15,000 per tonne. The navratna company says there is headroom for a second round of price increase, given the robust outlook on international aluminium prices on account of US sanctions on Rusal; smelter shutdowns in China, the biggest producer; and production cuts by Norsk Hydro in Brazil.

“We expect the current trends in the LME to continue for the next two quarters or so. Aluminium prices will either rise or hold on to the current level. The price surge will benefit primary producers. Prices of aluminium products in the country are expected to go up because our prices hinge on LME price movements. The spiralling prices of primary aluminium, however, would hit the secondary producers and it remains to be seen if they pass on the hike to the end customer,” said a source at Nalco.

Along with aluminium, alumina prices have also gone up, bringing gains for Nalco. The company exports more than 1 million tonne of surplus alumina each year and has realised a decade-high price of $601 per tonne on its recent alumina shipments. 

Nalco sells almost its entire alumina volume at spot or index prices. Alumina operations contribute around 75 per cent to Nalco's EBITDA (earnings before interest, taxes, depreciation and amortisation). The aluminium major foresees LME prices to hover around $2,500 per tonne in the first quarter of 2018-19.

The other two primary producers — Vedanta Ltd and Aditya Birla Group Hindalco Industries — did not respond to an e-mail questionnaire by Business Standard.

The stocks of Nalco and Hindalco, which rose by up to 20 per cent last week after US sanctions on Rusal, crashed on Tuesday nearly 10 per cent in early morning trade. 

Nalco tanked 10 per cent to Rs 75.85 while Hindalco fell 9.5 per cent to Rs 232 on the National Stock Exchange (NSE). 

Shanghai aluminium futures had hit their three-month peak last week amid supply uncertainties because Rio Tinto enforced force majeure on some contracts after the US imposed sanctions on Rusal, its partner.

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