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Aluminium major Hindalco’s hopes of getting back captive coal blocks to power its Mahan and Hirakud plants were dashed when the Coal Ministry marked these blocks for the power sector. Yet, the stock was up over 2.5 per cent on Friday and closed at ₹157.60. This was after a gain of over 3 per cent on Thursday. What gives?
Certainly winning back the coal block would have helped the profits at its aluminium smelter plants given that power accounts for over a third of the operating cost. The company has invested nearly ₹10,500 crore in its Mahan plant and higher power cost due to coal procured from other sources, is a dampener.
Prices to move northwards But, while the local coal scene is dark, two factors are adding lustre to the stock. One is the pick up in global aluminium prices. Even as most commodities such as iron ore are on a downward price spiral, aluminium prices shone this year.
Prices at the London Metal Exchange increased from under $1,700 early this year to $1,900 levels currently. Prices may continue to look up and global aluminium major Alcoa expects the metal to be in deficit this year. Add to this, global coal prices are lower, helping somehow to ease concerns over smelter profitability.
Second, upbeat sentiment in the US is helping the prospects of Novelis, Hindalco’s US subsidiary and the world’s largest producer of rolled aluminium products.
Novelis brings in around two-thirds of Hindalco’s consolidated revenue and a third of the company’s profits. The subsidiary is set to profit as automobile manufacturers such as Audi AG and Ford Motors replace heavy steel with lighter aluminium to meet stricter emission norms in the US and Europe.
Report lends support A recent report from Bloomberg, citing unnamed sources, indicated that Hindalco targets tripling its exports to nearly four lakh tonnes by March 2015, compared with a year ago. This is an estimated value of nearly $1 billion. Growing aluminium demand and prices are, therefore, likely to buoy the company’s share price, outweighing local concerns.
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