More shine to National Aluminium Company

The share price of National Aluminium Company (Nalco) has surged 30 per cent after it hit an almost two-year low of INR 28 on August 25, following a rout in metal stocks on concerns over Chinese slowdown. Though China still remains a concern, analysts say current aluminium prices are factoring in too much pessimism, and ignoring fundamentals, and hence should rebound. Further, for Nalco, the good news is allocation of Utkal D and E coal blocks in Odisha.

The Utkal E block was held by Nalco since 2004, and the company had spent INR 126 crore on its development (including INR 98 crore on compensation for land acquisition). The block had got de-allocated following a Supreme Court order. Thus, its re-allocation, along with another block, is a positive for Nalco, and will help contain costs.

Subdued coal prices and higher supplies by Coal India will benefit Nalco. The company had been operating its smelter at low utilisations (about 65 per cent), and its plans to ramp up production on easing domestic supply of coal would enable better fixed cost recovery even at low metal prices, say analysts.

London Metal Exchange aluminium prices, which had fallen 25 per cent in a year to $1,525 a tonne, are up at $1,550 a tonne. Analysts say current depressed levels in aluminium are driven by speculation and unfavourable currency movements. They add prices ignore the support of the global cost curve, which makes a third of the global capacity unviable and is triggering sharp supply cuts.

In light of the supply cuts, aluminium prices (including premiums) are seen rising close to $2,000 a tonne levels in a few quarters. Market analysts point to a study on price trends, which shows after a large fall, a rebound occurs in six to nine months.

For Nalco, easing coal supplies, with stable-to-improving prices, should be good. But the strength is low-cost alumina production, and alumina prices are relatively stable. Analysts say given its long alumina position, with alumina pricing outlook relatively firm, they remain positive on Nalco.

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