India has announced 2 sets of stimulus packages coupled with monetary measures to boost the ailing real estate and infrastructure projects in the recent past. Huge metal buyer China also announced spending to the tune of USD 586 billion in November. But the Indian government’s announcement of sops will take some time to make impact.
A severe decline in demand in most metals in the H2 of 2008 resulted in rising stocks and falling prices in India. Producers have resorted to production cuts and slowed down CAPEX. Most of the frontline metal producers have either reported a drop or marginal rise in net profit in the third quarter of fiscal 2009.
While, India has strong reserves of good quality bauxite and zinc, it does not have quality copper ore reserves. Thus, the Indian copper industry is primarily involved in custom smelting operations, whereby it processes copper concentrate into metal on a custom basis.
Indian smelters margins and profitability are not directly linked to copper prices, rather, they reflect the demand to supply situation between copper concentrate and the availability of smelter capacities.
Moreover, India has a production capacity of about 1.2 million tonne per annum and accounts for about 3% of global capacity. The capacity is split between three major players such as Hindalco, Vedanta Resources PLC and Nalco.
Most aluminium producers follow pricing parity with landed costs of imports, including both freight and import duties. However, with the substantial increase in CAPEX planned by the 3 majors, the domestic market could face an oversupply of the metal over the long term. Aluminium prices have fallen off a cliff from about USD 3,300 a tonne in July to USD 1,300 a tonne in January. The average cost of production for most of global aluminium producers are above USD 2,000 a tonne.
In China, the cost of manufacturing was higher at USD 2,400 a tonne due to the higher power and bauxite costs. The average cost of aluminium production for Hindalco and Nalco was lower at USD 1,000 a tonne to USD 1,200 a tonne due to abundant bauxite reserves.
In the short to medium term, aluminium prices to remain depressed following fall in demand, especially from China.
In case of zinc, though the cost of production has come down from USD 730 a tonne to USD 550 a tonne to USD 600 a tonne recently with sharp fall in raw material, the profit margins are expected to be under pressure due to the demand slowdown globally.
Source : steelguru.com