Aluminium exports may rise by year-end

Falling LME inventories, yuan revaluation to be the likely triggers

India’s aluminium exports are likely to pick up within the next two quarters due to falling inventories at the London Metal Exchange (LME) and revaluation of the Chinese yuan.

“Currency float by China will have a positive impact on exports, but may not affect growth substantially. However, aluminium demand in the international market is sound and will get support from the decreasing inventory of the metal at LME,” said A K Sharma, director (production), National Aluminium Company Ltd (Nalco).

Sharma, who also heads the Federation of Indian Mineral Industries (Fimi) panel for non-ferrous metals, said Nalco had been selling aluminium at a premium of close to $90 a tonne of late and expected the trend to continue.

Aluminium prices were hit due to the sovereign debt crisis in some European nations. Prices, which reached close to $2,316 a tonne for three-month delivery in April, had fallen 16 per cent to $1,930 per tonne in June. At present, aluminium for three-month delivery is around $2,000 per tonne.

“We expect prices to stabilise at the current level. They may touch $2,150 a tonne by December,” Sharma said.

Talking about the current inventory level of 4.3 million tonnes at LME, he said, “Most of the inventory has been tied up with financial deals, with less stock available for physical delivery. Also, the decreasing stock shows signs of demand growth from economies.”

Hindalco, in a recent briefing for analysts, said China would use 18 per cent more aluminium this year (16.407 million tonnes), while Indian consumption was expected to rise 18 per cent to 1.664 million tonnes. The domestic production of aluminium is estimated at three million tonnes a year. The report also pointed out that world consumption (excluding China’s) would be 22.592 million tonnes during the current financial year.

Referring to the Chinese factor, analysts said more than the currency revaluation, Chinese demand would drive growth in future. “Chinese currency revaluation will have a minimal impact on the Indian aluminium market, as it is still subdued. Rather, economic recovery in the European nations will drive demand growth,” said Biren Vakil, director, Paradigm Commodities.

Other industry experts echoed the sentiment. “Yuan revaluation will have a long-term impact on exports, as the Chinese authorities will revalue the currency in tranches,” said Goutam Koderi, research analyst at JRG Wealth Management, adding that the falling inventory level at LME showed signs of demand growth that were more fundamental and were expected to be sustained.

Koderi told Business Standard that the proposed floating of aluminium exchange-traded fund (ETF) would give support to the current price levels.

According to market news, UC Rusal is planning to launch an aluminium ETF next year, while Swiss commodity trader Glencore is also expected to come up with such a product.

Industry experts say aluminium ETFs have the capacity to absorb around 1.5 million tonnes LME stock, which in turn will push up aluminium prices.