Metal stocks fall on royalty hike

MEERA SIVA BL Research Bureau | Updated on August 21, 2014 Published on August 21, 2014

Aluminium producers Sesa Sterlite and Hindalco were down over 1 per cent, reacting to higher royalty for bauxite. Metal stocks were also hurt by a slip in China’s latest PMI data which showed that the index slipped to 50.3 in August from 51.7 last month.

Impact on aluminium

Royalty rates for aluminium will be revised marginally to 0.6 per cent from 0.5 per cent of the London Metal Exchange (LME) aluminium price (based on the metal content in the ore).

While higher royalty payment will dampen sentiment, the likely impact will be minimal. For one, aluminium producers have been grappling with other issues such as lack of local bauxite ore and high power cost. Transporting ore or importing is expensive. Also, power cost accounts for nearly 40 per cent the overall input cost. If states use the higher royalty collection to improve infrastructure and reduce delays in granting mining leases, the long term impact of the hike could turn out to be positive.

Also, after nearly two-and-a-half years of subdued prices, the light weight metal has been perking up. Average price at the LME crossed $2,000 per tonne, from the lows of $1,700 early this year. Price is expected to remain at these levels, thanks to higher demand and low inventory levels. Better prices will likely help offset the nominal increase of $2 per tonne in royalty rates. ​

Published on August 21, 2014
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