Birla Said to Plan $1 Billion Aluminum Exports: Corporate India

Hindalco Industries Ltd. (HNDL), owned by Indian billionaire Kumar Mangalam Birla, is targeting a record $1 billion of aluminum exports by March 31 buoyed by rising U.S. and European demand, people with knowledge of the matter said.

Overseas shipments may triple to as much as 400,000 metric tons in the 12 months ending March 31 from the previous year, said two people, who asked not to be identified because they aren’t authorized to speak to the media. The Mumbai-based company had exported less than half the target as of the middle of last month, the people said.

Stricter emission norms in the U.S. and Europe are prompting vehicle makers to choose the lighter alloy over steel, helping the owner of the world’s largest supplier of aluminum sheets to carmakers boost overseas sales and counter a domestic slowdown. The additional demand will aid Hindalco revive profit growth after five straight quarters of decline and find a market for its new capacity.

“Hindalco will look to export if India demand doesn’t recover,” said Rakesh Arora, head of research at Macquarie Capital Securities India Pvt. “Spot premium ex-China is quite high. Every smelter in the world today is making money at current prices.”

Hindalco spokeswoman Pragnya Ram didn’t reply to an e-mail seeking a comment.
Price Premiums

Aluminum premiums in the U.S., European Union and Japan have gained as much as 82 percent this year triggered by deficits outside of China, the largest producer, according to an Oct. 1 report by Bloomberg Intelligence analysts Oliver Nugent and Kenneth Hoffman. Premiums, which the buyers pay over the London Metal Exchange prices for spot delivery, rose after output cuts by smelters including United Co. Rusal and Alcoa Inc., created a shortage.

Hindalco exported more than 100,000 tons in the year ended March 31, when the average LME price was $1,817 a ton, excluding a premium of about $250 a ton.

Hindalco, which is in the process of adding 720,000 tons of smelting capacity since April 2013, expects to fill the supply gaps left by plants shuttered in North America, Australia and Europe, the people said.

Output, mainly from Hindalco’s Mahan unit in the central state of Madhya Pradesh, is being shipped to Asian countries including Japan and South Korea, as also markets in America, Africa and Europe, they said.
Unviable Capacity

Hindalco shares have risen 25 percent this year in Mumbai, compared with a 28 percent increase in the key S&P BSE Sensex. (SENSEX) The stock rose 4 percent, the most since Oct. 29, to close at 152.95 rupees. It was the second-best performer on Sensex.

Despite strong demand globally, excluding China, about 3 million tons capacity were closed as higher input costs and lower LME prices made them unviable, according to a Hindalco presentation in August.

Alcoa, the largest U.S. aluminum producer, has curtailed, closed or sold 1.3 million tons of its high cost smelting capacity since 2007, it said in October.

Aluminum prices will probably rise as global demand growth is expected to average at least 5.5 percent in “coming years,” while supply is unlikely to grow much more than 3 percent, Nic Brown, head of commodity research at Natixis SA said in October. He predicts prices will average $2,070 a ton next year and $2,240 in 2016 versus this year’s $1,896.
Car Frames

Aluminum has gained 6 percent in London in 2014, set for the biggest annual advance in four years. Demand for the metal used in car frames and soda cans is expected to exceed output this year, benefiting producers such as Hindalco.

Regulations to cut carbon emissions and improve fuel efficiency in the U.S. and Europe are prompting carmakers to use more aluminum. Alcoa expects the gap between metal demand and supply to be about 700,000 tons globally this year.

“North America has been in a deficit position with the growth in the automotive business,” Alcoa’s Chief Financial Officer William F. Oplinger said at a Goldman Sachs Global Metals and Mining Conference last month. “We don’t see that going away anytime soon.”

Novelis Inc., the world’s biggest supplier of aluminum sheets to carmakers and a unit of Hindalco, expects demand from customers including Audi AG and Ford Motor Co. to almost triple as new emissions rules restrict the use of steel.

Shipments of automotive aluminum may climb to as much as 25 percent of total sales by 2020 from the current 9 percent of 3 million tons, Novelis Vice Chairman Debnarayan Bhattacharya said in August.

India produces more aluminum than it needs and the gap widened in the past year after Hindalco started two smelters of 360,000 tons each in Madhya Pradesh and Odisha states. The company’s total capacity will exceed 1.1 million tons, enough to meet 70 percent of India’s annual demand of about 1.6 million tons.

“Hindalco’s output will rise this year, and India can only take a part of this,” Kunal Agrawal, an analyst at BNP Paribas SA, said by phone from Hong Kong.

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