19 Jan 2019
Impact: Positive (automobile, construction, electronic goods and packaging), Negative (Aluminium Metal Recovery Facilities)
Aluminium prices are softening both in the international as well as domestic market. As on December 2018, price has dropped to an 18-month low of $1,920/mt (-7.7% YoY) in the international market. In the domestic market, the commodity is currently trading at a 9-month low of Rs. 1.56 lakhs/ mt. The downward trend in aluminium is primarily a result of mild demand especially from China. The global manufacturing hub has significant influence on price of the commodity as it consumes around 60% of the entire global aluminium production. Due to the ongoing uncertainty regarding the US-China trade tension, it is understood that industrial activities in China have been witnessing a slowdown. Therefore, price of the commodity has been facing downward pressure.
Since automobile, construction, electronic goods and packaging industries are the major consumers of aluminium, a drop in price will reduce input cost of these sectors. However, there is another side of the story as well that pertains to the supply side. It is noteworthy of mentioning that around 34% of the advances in the basic metal industry including aluminium are stressed assets. Therefore, a weaker price will further increase the stress assets in the industry.
As things stand, even though the slowdown in demand may reverse in the short to medium term, we do not see prices rallying anytime soon. This because of two things. First, there is tremendous supply glut in the system despite inventory cut downs and evident recoveries, albeit minor. Second, the Russian suppliers, who are currently offline due to sanctions may re-enter the market – a situation which will make the supply demand mismatch much more pronounced. India, with a consumption share of 2% in the refined market - is a somewhat marginal player and will therefore be greatly influenced by global prices; a fact that is for once in the country’s favour.