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The buoyancy in metal prices is expected to outweigh input cost pressures, supporting the profitability of domestic base metal companies in this fiscal.
International prices of base metals have been up sequentially by 3-18 per cent in March quarter compared to the previous quarter and are expected to remain elevated in the first half of this fiscal, owing to supply-side constraints in the near term.
Jayanta Roy, Senior Vice-President, ICRA, said, the continued earnings surge in the next 12 months on the back of buoyant metal prices and deleveraging of balance sheets will result in a further improvement in the domestic industry’s risk profile.
As for the international base metal prices, while the downside risks to prices, particularly in the second half of this fiscal cannot be ruled out, depleting inventories would limit any sharp price corrections during this period, he added.
Aluminium prices have already risen by 15 per cent in March compared to January fuelled by the ongoing Russia-Ukraine war and elevated power costs in the European countries, said ICRA.
The domestic demand for base metals registered a growth of 10-15 per cent in last ten months aided largely by improved demand from end-user industries and partly by a low base effect.
Off-take risks in the international market remain low, given the domestic manufacturers’ cost competitiveness and the recent production cuts in China.
However, lower copper production has created a large deficit in the domestic market, resulting in large imports, and the situation is unlikely to improve in the near term.
In CY2021, the global demand (ex-China) of base metals increased at a faster rate of 7-10 per cent, while in China, the growth remained moderate at 2-5 per cent for aluminium and zinc, while in copper, there was a contraction in consumption.
In 2022, the deficit is expected to persist for aluminium and zinc owing to supply cuts, while higher copper production is likely to result in a surplus situation in the second half. The tight supply situation augurs well for base metal prices in the coming quarters, said Roy.
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