Oct 14, 2003|
Aluminium: A re-take
After steel, aluminum stocks are now proving their mettle on the bourses. Just to put things in perspective, in the calendar year 2003 (to date), aluminium stocks have managed to outperform the BSE Sensex comfortably. While the Sensex has notched gains of 41% in the period under consideration, the stock price of Hindalco has appreciated by 86%! Its peer, India’s largest alumina producer and second largest aluminium producer, National aluminium (Nalco), has also appreciated by 50%. In this article, we try to analyse what has been driving the stock prices, apart from market sentiments.
One of the key drivers for the stock prices of Hindalco and Nalco has been the benchmark international aluminium prices, which has increased by about 12% in 2003 to date and much of the rise (7%) has come post-1H2003. As evident from the graph above, the share price movement of both Hindalco and Nalco reflect the rise in aluminium prices post 2003. Aluminium prices are currently ruling at their 2-year highs as also prices of other metals like copper (almost 3-year highs), lead (5 year-highs) and zinc (13-year highs).
Akin to the demand for all commodities, the demand for aluminium is also being driven by China. Currently, the country’s insatiable demand for metals, including aluminium, has been supporting the high prices in the international markets. The Chinese demand has been on the rise owing to huge infrastructure spending by its government. Moreover, with the Chinese economy continuing to power ahead with GDP growth rates in excess of 8%, the demand for consumer goods like white goods and cars have been on the rise.
Another reason for the rise in stock prices, especially Nalco, which has a larger alumina presence, has been the doubling of alumina prices in 2003 to about US$ 300 per tonne. China requires alumina in the region of about 9-10 MT, while its current alumina capacity of about 5 MT (the deficit met through imports). This has had a positive impact on prices.
However, the world’s larger economies, the US and the EU consume 60% of the world’s aluminium. Though there have been instances of upgrades in the recent past, sustainability is under cloud. While the airline industry has shown improvement in order book position, larger airline majors are focused on consolidation.
Aluminium prices continue to rule strong and indications of demand unlikely to subside considerably in the near future backed by strong support from China (second largest consumer of aluminium in the world). However, at current valuations, on price-to-earnings basis, aluminium stocks are on the higher side of the spectrum and much of the FY04 expectations have already been factored into the current stock price. At the same time, big-ticket consolidation in the industry of the likes of formation of Arcelor and now Alcoa’s bid for Pechiney all seem to signal good times ahead for the global aluminium industry.
More Views on News
Feb 22, 2017
Hindalco Industries has reported a 14.5% YoY increase in the topline while the bottomline came at Rs 3.2 billion.
Dec 21, 2016
SAIL has reported a 21.4% YoY increase in the topline while the bottomline reported a loss of Rs 7.31 billion.
Dec 19, 2016
Tata Steel has reported a 0.1% increase in the topline while the bottomline was in red in 2QFY17.
Nov 30, 2016
Hindalco Industries has reported a 1.1% YoY increase in the topline while the bottomline has accelerated by 255.4% YoY.
Oct 25, 2016
Hindustan Zinc has reported an 11% decline in the topline while the bottomline has declined by 15.4%.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407