Business Daily from THE HINDU group of publications
Friday, Aug 18, 2006
Business Daily from THE HINDU group of publications Friday, Aug 18, 2006 |
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Markets
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Stocks
Deeptha Rajkumar
Weak sentiment Alumina spot prices to continue to be under pressure Weakening largely due to capacity build up in China Negligible presence in value-added segment
Mumbai , Aug. 17 The counter of National Aluminium Company Ltd has been range-bound on the bourses in the recent past. The company's muted production growth outlook and slipping alumina prices appear to be impacting investor sentiment, said market sources. The stock, which was quoting at Rs 199.60 on August 10, closed at Rs 201.05 on the BSE today. The counter has also seen a five per cent depreciation in share price, month on month.
Weakening fundamentals
According to analysts, alumina spot price will continue to be under pressure from weakening fundamentals with a spurt in alumina production, especially in China. "The weakening fundamentals of alumina market will impact earnings outlook of Nalco. The weakening is largely due to incremental capacity build up in China. Besides, the company has negligible presence in the value-added segment and is thereby correspondingly less cushioned to insulate itself from aluminium prices. Thus, we do not see any volume growth over the next two years," said Mr Pritesh Vinay of Edelweiss Securities. FY-07 will be peak earnings for the company and thereafter there will be a decline, he added.
Spot prices weak
As per Metal Bulletin, Nalco has received a lower bid at $280 per tonne for its latest tender for 30,000 tonnes. This indicates a drop of about 35 per cent from the previous price of $432 per tonne sometime in early July. In March 2006 spot prices were at$633 per tonne. Thus, clearly spot prices look to be on weak ground. According to JM Morgan Stanley Research, this will impact a player like Nalco, which has low bargaining power due to its high exposure (about 65 per cent currently) to the spot market. They are of the view that the sharp gradient of price decline displays some exaggerated fears in the alumina market and Nalco's shaky position due to its high exposure in the spot market.
Price pressure on tender
"The spot price of $280 per tonne translates into 10.8 per cent of LME aluminium price and could put downward price pressure on Nalco's upcoming (September 2006) one year contract tender of 270,000 tonnes (about 30 per cent of Nalco's alumina sales volume). Hence, alumina, which has been the driver for Nalco's stock performance, could become a drag in the near future," said JM Morgan Stanley Research. Nalco, a leading producer of alumina and aluminium in India, has a smelting capacity of 345,000 tonnes per annum of aluminium and 1.6 million tonnes per annum of alumina. Its production operations are completely integrated; hence, it is among the lowest-cost producers of aluminium globally. The principle shareholder is the government, owning 87 per cent of the shares outstanding.
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