Rusal’s Positive Outlook May Bring Cheer To Indian Aluminium Producers

Earnings of domestic aluminium makers may improve as Russia's Rusal, the world's biggest producer of the metal outside China, expects global demand to grow at a faster pace on easing trade concerns and declining exports from India's neighbour.

Global demand for aluminium is likely to grow at an average rate of 3.7 percent in 2019 compared with 3.6 percent in the previous year, according to Rusal's post-earnings release. Also, Deputy Chief Executive Officer Oleg Mukhamedshin, in an earnings call, said the company expects the global market, barring China, to face deficit of 1 million tonne this year.

Rusal faced American sanctions in April last year. But the benchmark prices of the metal still fell 30 percent, hitting an 18-month low in December, as trade war tensions eroded demand. While prices rebounded only 1 percent after the U.S. lifted curbs in January, aluminium remained the worst performing metal on the London Metal Exchange in the past 12 months and so far this year.

The Russian producer reiterated its positive industry outlook following the lifting of U.S. sanctions. Also, lower production from Chinese aluminium smelters may support prices of the metal.

The financials of aluminium producers are sensitive to fluctuations in LME prices, Macquarie said in a report. A 1 percent change in aluminium prices, according to the research firm, would impact the earnings per share of National Aluminium Company Ltd., Hindalco Industries Ltd. and Vedanta Ltd. by 1-4 percent.

Valuations of aluminium producers like Hindalco, Nalco and Vedanta are trading at 35-40 percent discount to their five-year averages, according to Bloomberg data. Share prices of the companies have declined as much as 9-13 percent year-to-date.

Satish Pai, managing director of Hindalco, doesn't expect LME aluminium prices to fall further in 2019 but hover around $1,800-1,820 a tonne. In case trade war resolves, Pai said the prices may rise to $2,000-2,200 a tonne.

JM Financial's metal analyst Ashutosh Somani said the global deficit is expected to increase this year to around 2 million tonnes, driven by a marginal shortfall in China from around 0.4-million-tonne surplus last year.