Aluminium: Just recovered, down again - Views on News from Equitymaster

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Aluminium: Just recovered, down again

Jul 19, 2001

The revised estimates of GDP place growth rate in FY01 at 5.2%, which is significantly lower than 6.4% reported in FY00. The sluggishness intensified in the fourth quarter of the previous fiscal, consequently, spilling into the first quarter of the current year. The production trends in the aluminium industry reflect the slackness in demand likely to be prevailing in the economy. Aluminium production declined by 13% YoY for the second consecutive month in April '01. In fact, production figures for April '01 are the lowest in the last 29 months, since October '98.

Fourth quarter results of the commodity majors could be an indicator of the malaise strengthening its grip over the sector. While Hindalco maintained 4Q topline growth similar to that of the full year, Indal and Nalco registered a siginficant drop in quarterly sales growth compared to fiscal '01 turnover growth. Sales of Indal and Nalco grew by 22.3% and 12.3% for the fiscal. Whereas, for the concerned quarter, growth reported was 14% and 1.4% for Indal and Nalco respectively.

Surmising from the above data, turnover growth for the quarter ended June '01 could have been very challenging with a slump in offtake coupled with weaker international aluminium prices. Prices of the base metal, on the London Metal exchange (LME), have declined by 1.4% in 1QFY02 and 9.8% from the highs reached in early May '01.

Encouragingly, however, the bourses staged a 'relief' rally last week, as favourable news entered the markets. Monsoons for the current year are expected to be normal and progressing as per schedule. Consequently, the economy could see a revival in rural demand in the latter part of the current fiscal, which is expected to buoy GDP growth in FY02. Base metal manufacturers could benefit, with a lag, as growth percolates into the economy.

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