Outlook for aluminium producers improves

Indian aluminium producers will benefit from better realizations and improving volumes will contribute to higher sales and profit growth

As the world economy recovers, demand for aluminium is expected to rise by around 10% in 2010. Two large global producers, UC Rusal Plc and Alcoa Inc., recently declared financial results for 2009 and the March quarter, respectively.

Alcoa expects the world aluminium market to be surplus in 2010, but at more manageable levels compared with the last year. It has projected demand in China to expand by 18% in 2010 and by 6% in the rest of Asia.

Rusal cites India as being a key growth market, driven by rising urbanization and industrialization, and projects a 10% growth during the year. Both companies see an uptrend in aluminium prices, despite high levels of inventories.

Alcoa's assessment of key user industries shows automotive and heavy truck and trailer industries as growing, while aerospace and beverage can sales are expected to be flat, and commercial building and construction and heavy-duty gas turbine output are expected to decline.Aluminium prices had fallen to around $1,950 （Rs86,970） a tonne from their January levels of $2,300 a tonne but have now recovered to above that level. They are trading at nearly 60% higher from a year ago.

In the March quarter, stand-alone aluminium producer National Aluminium Co. Ltd's profit is projected to rise 150-200% over the same period a year ago. Hindalco Ltd derives revenue from other products such as copper too; its net profit is expected to rise by between 80% and 100% over the previous year. Sterlite Industries Ltd, another diversified non-ferrous company, is expected to see its profits rise by 130-200%. The increase in profits is chiefly due to higher prices of aluminium.

Indian aluminium producers will benefit from better realizations and improving volumes will contribute to higher sales and profit growth. In Hindalco's case, apart from domestic operations, the performance of Novelis Inc. will be a key factor affecting its consolidated results. The Canadian firm's performance had improved in the December quarter and investors will wait to see if Hindalco's acquisition will become a significant contributor to performance in fiscal 2011.

The appreciation of the rupee against the dollar is a concern, as export realizations decline and imports become cheaper. Both Hindalco and Sterlite will see capacity expand as their various projects start production.

For aluminium producers, higher output during a period of rising aluminium consumption and stable prices will see their results improve in fiscal 2011, too.