What’s In Store For Indian Aluminium Producers In Alcoa’s Dim Outlook

Alcoa Corp., the biggest aluminium producer in the U.S., further lowered its forecast for global demand, a potentially worrying sign for its Indian peers whose financials are sensitive to the prices of the base metal.

Alcoa expects global aluminium demand growth to range between 2 and 3 percent, down from its earlier projection of 3 to 4 percent—the lowest in a decade— made in the previous quarter. The company anticipates global aluminium deficit to range between 1.5 million and 1.9 million metric tonnes, down from last quarter's full-year estimate of between 1.7 million and 2.1 million metric tonnes.

Reacting to this development, LME Aluminium futures dropped 0.8 percent in trade today and have risen 2.95 percent so far this year, making it the second-worst base metal after lead. The ongoing U.S.-China trade war, slowing demand in China and imposition of import duties have also adversely affected the aluminium market.

Impact On Indian Producers

The financials of Indian aluminium producers are sensitive to fluctuations in LME prices, Macquarie said in a recent report. A one percent change in aluminium prices, the research firm said, would impact the earnings per share of National Aluminium Company Ltd., Hindalco Industries Ltd. and Vedanta Ltd. by nearly 3.8 percent, 2.1 percent and 1.3 percent, respectively.

Hindalco's Managing Director Satish Pai, however, said after the third-quarter earnings that he doesn't expect LME aluminium prices to decline in 2019. He said that he expects prices to hover around $1,800-$1,820 per tonne, while in case of a trade war, prices can shoot up to $2,000-2,200 per tonne.

Alcoa reported a loss of $199 million for the quarter ended March compared with a profit of $190 million in the year-ago period. That was largely due to an impact of $156 million stemming from a collective dismissal process at two of its copper smelters in Spain. The company had said in October last year that the smelters would be shut.

Yet, the Pittsburgh-based company said it expects favourable improvements from third-party energy sales in Brazil in the second quarter of the year and lower prices of raw material—especially that of alumina. The company follows the calendar year as its financial year.