Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Aluminium: Keep the faith - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 1, 2001

    Aluminium: Keep the faith

    Aluminium is the most abundant metal found in the earth's crust. But its entry into mainstream was only in the nineteenth century due to the absence of any process to commercially extract the base metal. Bauxite -- the natural state -- is the most commonly mined aluminium ore due to its high alumina content, which on smelting is converted into primary metal.

    India is blessed with large bauxite reserves, which could play an instrumental role in the country emerging as a leading aluminium producer. The fifth largest bauxite reserves of 3 bn tonnes, representing 8% of global reserves, are found in India. However, in terms of aluminium production & consumption India ranked ninth and tenth respectively in FY00.

    Aluminium had a poor start to the nineties with prices collapsing to $1,100 / tonne levels by mid 1993 from above $2,400 / tonne during 1989. The breakdown of Union of Soviet Socialist Republics (USSR) towards the 90's led to Soviet aluminium producers targeting export markets due to the turmoil back home. The sudden and sharp surge in global aluminium supply resulted in weakening prices. It took the creation of a cartel to pull the industry out of the bear grip.

    Over '97 & '98, the environment for aluminium once again turned deleterious with striking of the Asian contagion followed by a financial crisis in Russia and Latin American markets. Having charted a recovery over the next two years commodity markets were once again in bear territory with the tech meltdown spreading across to other sectors in 2001. These trends seem to indicate that cyclicality and therefore volatility of business has increased, which could be attributed to globalization.

    Aluminium prices have bounced back after sliding continuously since start of the fiscal. The base metal price, which ruled at $1,500 / tonne levels in April '01 slid to $1,350 / tonne levels by mid September before collapsing post WTC events. Like other commodities, aluminium suffered, as fears of a more pronounced downturn and coercive actions against the perpetrators sent business confidence into a tailspin. The sentiment towards aluminium was even gloomier, as the airline industry was amongst the worst hit from the aftermath of the WTC incidents. Over the next 30 days aluminium prices dropped to 30 month lows of $1,243 / tonne. But belief of a rebound in the global economy sooner rather than later has sent aluminium prices shooting higher, rising by 12.4% from the September '01 lows.

    The outlook for the aluminium cycle seems to be favourable. The projected demand-supply gap (deficit) in Western markets for primary aluminium in calendar year '02 is estimated at 2.4 m metric tonnes (MMT). Aluminium inventories are ruling low, which has allowed a smart rally in the metal on hints of economic recovery. Further, instability in power supply has led to shut down of capacities in North West America. Currently, 1.3 MMT of capacity (6% of global capacity) remains idle and is not expected to come onstream over the next 12-24 months.

    Global demand-supply scenario…
    (MMT) 2000 2001E 2002E
    Demand 20.5 20.2 20.9
    % growth 4.1% -1.4% 3.6%
    Production 17.7 17.4 18.3
    % growth 2.6% 1.3% 5.3%
    Surplus / (deficit) (2.8) (2.8) (2.6)
    Domestic demand-supply scenario…
    (MMT) 2000 2001E 2002E
    Demand 571 617 666
    % growth -5.5% 8.1% 7.9%
    Production 641 624 712
    % growth 3.7% -2.7% 14.1%
    Surplus / (deficit) 70.0 7.0 46.0

    Domestically, the largest consumers of aluminium are electricals, consumer durables and transport sector. The recent rally on stock markets seems to suggest bottoming out of the economy and unfolding of a turnaround. A reversal in the economy is likely to result in higher all round demand. The imperative Government is placing on infrastructure road projects viz. golden quadrilateral & North-South, East-West corridor, is likely to prove to be an impetus for the transportation sector. Percolating of this demand to feeder industries could pan out to be a positive surprise for the aluminium sector. The consumer durables sector is showing early signs of recovery with televisions & refrigerators reporting improved sales over the past two months. Though this could be attributed to the festive season.

    The power sector is the largest consumer of aluminium and any progress on that front is likely to be a strong driver for demand. Having said that, there is no telling when power sector reforms will unlock growth in the industry. Therefore, ending with the perennial value investing argument India's per capita consumption of aluminium is 0.6 kgs compared to 26 kgs in U.S and 2.7 kgs in China. Keep the faith.



    Equitymaster requests your view! Post a comment on "Aluminium: Keep the faith ". Click here!


    More Views on News

    Hindalco: Strong Performance at Operating Level (Quarterly Results Update - Detailed)

    Feb 22, 2017

    Hindalco Industries has reported a 14.5% YoY increase in the topline while the bottomline came at Rs 3.2 billion.

    SAIL: Good Performance at EBITDA Level, Headwinds in the Offing (Quarterly Results Update - Detailed)

    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.

    Tata Steel: Domestic Realisation Disappoints, Loss continues... (Quarterly Results Update - Detailed)

    Dec 19, 2016

    Tata Steel has reported a 0.1% increase in the topline while the bottomline was in red in 2QFY17.

    Hindalco Industries: Strong Operational Performance Boosts Profitability (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Hindalco Industries has reported a 1.1% YoY increase in the topline while the bottomline has accelerated by 255.4% YoY.

    Hindustan Zinc: Good Performance but Valuations at Premium (Quarterly Results Update - Detailed)

    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

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    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: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)