Hindalco deal may not impact aluminium prices

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Prices benchmarked against LME rates

Suresh P. Iyengar

`Positive effects'

The deal

will bring about scale economies and help reduce costs over time.

It will

also allow access to raw material and to markets around the world for products.

MumbaiFeb. 12The $6-billion Hindalco deal to take over US-based Novelis Inc is unlikely to have any impact at least in short term on domestic aluminium prices as they are benchmarked against London Metal Exchange (LME) rates.

The deal will bring about scale economies and help reduce costs over time. Also, it will allow access to raw material and to markets around the world for products.

"The deal will catapult Hindalco's flat rolled product capacity from 2 lakh tonnes to 32 lakh tonnes per annum and elevate the company to leadership position in the business. The profitability of Hindalco can go up over a period of time, but I don't see any impact on aluminium prices," said Mr Shivanshu Mehta, Assistant Vice-President, NCDEX.

Good demand

Domestic aluminium product prices are fixed by producer companies benchmarking to LME. Aluminium product prices in India vary between Rs 1,47,000 and Rs 1,50,000 a tonne, depending on specifications.

Rising demand for aluminium from the power and construction sectors is likely to keep aluminium prices firm. Year-on-year, aluminium prices have moved up by 44 per cent from $1,840 per tonne to $2,645 per tonne in January.

"Similar to steel, aluminium sector is also into consolidation. The deal will lift India's image in overseas metals arena and can open up new markets for Hindalco. More deals this big can change India's position from price takers to price makers," said Mr Sushil Sinha, Regional Head, Karvy Commodities.

About Hindalco

"Hindalco is a strong, dynamic company. The combination of Novelis' world-class rolling assets with Hindalco's growing primary aluminium operations and its downstream fabricating assets in the rapidly growing Asian market is an exciting prospect," said Mr Ed Blechschmidt, acting CEO, Novelis.

The US-based Novelis has the unrivalled capability to provide its customers with a regional supply of technologically sophisticated rolled aluminium products throughout Asia, Europe, North America and South America.

Through its advanced production capabilities, the company supplies aluminium sheet and foil to the automotive and transportation, beverage and food packaging, construction and industrial, and printing markets.

Significant share

Hindalco is a leading domestic player in two non-ferrous metals business segments aluminium and copper. The aluminium division product range includes alumina chemicals, primary aluminium ingots, billets, wire rods, rolled products, extrusions, foils and alloy wheels.

Hindalco has a significant market share in all the segments in which it operates. It enjoys a domestic market share of 42 per cent in primary aluminium, 63 per cent in rolled products, 20 per cent in extrusions, 44 per cent in foils and 31 per cent in wheels.

In India, the usage of flat rolled aluminium product is yet to catch up.

(This article was published in the Business Line print edition dated February 13, 2007)
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