Short-term outlook challenging for Hindalco: Kumar Mangalam Birla

Structural oversupply and depressed pricing scenario will continue to impact sales, says Hindalco Industries chairman Kumar Mangalam Birla


Copper demand is facing challenging times as China is moving away from an investment-led to a consumer-driven economy. Photo: AFP
Copper demand is facing challenging times as China is moving away from an investment-led to a consumer-driven economy. Photo: AFP

New Delhi: Hit by oversupply and depressed prices of metals, the outlook for aluminium and copper producer Hindalco Industries Ltd is “challenging” in the short term, its chairman Kumar Mangalam Birla said on Wednesday.

Besides, high imports will continue to impact sales of the flagship company of the $41 billion Aditya Birla Group, he added.

At Hindalco’s annual general meeting, Birla said, “Notwithstanding the strong operational performance, the short term outlook is challenging given the structural oversupply and depressed pricing scenario. The sharp increase in imports will continue to impact sales.”

He said demand in India, however, is expected to be strong, as the firm sees an improved outlook on industrial and infrastructure growth. “The government’s thrust on the power sector works well for the aluminium and copper industry. We are also sharpening our thrust on downstream value added products in India, as these yield better realisation,” Birla said.

On the aluminium industry scenario in 2015-16, he said the industry saw significant challenges as the average realisations crashed. The average aluminium London Metal Exchange (LME) price was 16% lower than the previous year, while the premium was down 68% compared to that of 2014-15.

Regardless, aluminium demand continued to remain strong. The cost deflation, especially energy costs coupled with depreciation of several local currencies vis-a-vis dollar, resulted in a sharp decline in the aluminium cost curve. “This exerted a lot of pressure on LME prices.

“Currently, though the prices appear to have bottomed out. In the Indian context, the demand scenario has been encouraging. The expected economic turnaround and improving industrial activity bode well for Hindalco,” Birla said.

“The decline in coal prices in India was a major relief. Depreciation of the rupee also helped Hindalco to an extent. However, the overcapacity in China and the consequent flooding of aluminium in the Indian market severely upset the balance, as imports surged in 2015-16,” he added.

In the case of copper, Birla said 2015 was a challenging year. Refined copper consumption growth declined sharply from 5.5% in 2013 and 4.6% in 2014 to 1.6% in 2015.

The global refined copper consumption in 2015 calendar was around 22 million tonnes (MT). This fall in consumption growth trajectory was primarily on account of slower growth in Chinese demand and slowdown in Japanese consumption, he said.

Copper demand is facing challenging times as China is moving away from an investment-led to a consumer-driven economy. By-product prices, especially sulphuric acid and fertilizers, were also supportive as local demand was good, Birla said.

He said the expected revival in domestic demand, especially in the power and housing sectors, portends well for Hindalco. Given the improvement in India’s gross domestic product (GDP), co-product prices are expected to be encouraging, which should bolster the copper business.

On the company’s performance, Birla said the aluminium business posted its highest production, crossing the 1 MT mark for the first time. Hindalco’s three greenfield projects—Utkal, Mahan and Aditya aluminium—have now ramped up to their full capacity.

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