Aluminium makers stare at piling inventory following Covid-19 outbreak

Indian aluminium producers are staring at the possibility of stockpiling of metal as Covid-19 pandemic has squeezed domestic consumption besides leading to a demand contraction among importing countries.

The situation is a double whammy for the aluminium firms who were already grappling with weak commodity prices.

Globally, many major auto companies have cut production. Construction activity, too, has come to a standstill. While demand from user industries has weakened, production of aluminium is expected to outpace demand which will exert pressure on aluminium prices unless substantial production cuts are announced by smelters in China and the rest of the word, a study by CARE Ratings noted.

In the domestic market, flagging demand, slowing pace of production and tumbling exports has unnerved the primary producers.

“The nationwide lockdowns has led to shrinking aluminium demand from user industries like power transmission, automobiles, construction and white goods. India is a net exporter of aluminium. But exports have suffered due to contracting demand from importing countries post the surfacing of Covid-19 pandemic,” said a senior official with a leading aluminium company.

Domestic aluminium demand has subsided by 0.4 per cent between April and January this fiscal against the same period of 2018-19. Moreover, the country’s primary aluminium production fell 1.6 per cent to 3.04 million tonnes in this period due to weakness in both international and domestic demand. Exports in the period under review contracted 5.8 per cent to 1.55 million tonnes whilst imports recorded a sharp drop of 18.6 per cent to 0.22 million tonnes.

Aditya Birla owned Hindalco Industries is the only producer to have registered growth in aluminium production during the period under review. Rest of the primary producers- state run National Aluminium Company (Nalco), Vedanta Ltd and BALCO witnessed their aluminium output sliding. Nalco’s production was down 4.6 per cent whereas for Vedanta and BALCO, output fell 3.3 per cent and 2.2 per cent respectively.

The study by CARE Ratings predicts global aluminium prices to be under pressure owing to the prevailing Covid-19 pandemic. Soft international prices are bound to have a bearing on the margins and bottomline of Indian aluminium makers as domestic prices hinge on global price movements.

“Aluminium prices are likely to remain under pressure due to uncertainty related to extensions of lockdowns due to the Coronavirus pandemic. Aluminium is widely used in power sector in India. Slowdown in manufacturing activities due to lockdowns across the country will hit demand for the metal. Demand from other user industries like automobiles is also expected to remain muted as major automobiles manufacturers have already shutdown their plants due to lower demand and lockdown measures announced by government,” the study noted.