Key factors that may drive India Aluminium sector in FY16

The latest report by India Ratings(Ind-Ra) says the operating profitability of domestic aluminium players will remain stable in FY16.

The agency expects the rupee-dollar exchange rate to marginally weaken and hover around INR63/USD, helping export sales realisation.

The on-going coal blocks auctions would substantially determine the direction of profitability, given as major players have captive power plants.

The agency does not expect the low aluminium price levels of sub USD1,689/ton observed in 2014 to be revisited in FY16. On the other hand, the price levels above USD1,900/ton may not be sustained for long, given global oversupply and high inventory levels.

The agency expects LME prices to increase at a moderate pace in FY16. Ind-Ra expects the global aluminium demand to stabilise, around current level, with a positive bias.

Regional physical premiums are likely to remain stable in FY16. The demand-supply situation of the physical metal outside China is fairly tight.

Domestically, metal price realisation may improve in 2HFY16, buoyed by a pick-up in volumes for industries such as automobiles, packaging, power and construction. However, 1HFY16 may exhibit some pressure on physical premium.

A further economic slowdown in China will cause a sustained long-term correction in metal prices and will lead to a negative sector outlook. A further economic slowdown in China will cause a sustained long-term correction in metal prices. Metal prices depend substantially on Chinese economic activity.

China accounts for 40%-50% of the global consumption of aluminium, copper and zinc metals. Latest leading economic indicators are not encouraging with a weak output and low order growth rates.

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