India, China packages may help metals market

NEW DELHI: Will the combined impact of various measures announced by several countries across the globe have a positive impact on metals market in the coming days?

India announced two sets of stimulus packages coupled with monetary measures to boost the ailing real estate and infrastructure projects in the recent past.

A severe decline in demand in most metals in the second half of 2008 resulted in rising stocks and falling prices in India.

Hindalco Industries net sales were down 9 per cent at Rs 4,117 crore (Rs 4,539 crore) in the third quarter of fiscal 2009, while its net profit was net profit rose marginally to Rs 545 crore (Rs 543 crore).

While India has strong reserves of good quality bauxite and zinc, it does not have quality copper ore reserves.

India has a production capacity of about 1.2 million tonnes per annum (mtpa), and accounts for about 3 per cent of global capacity. The capacity is split between three major players such as Hindalco, Vedanta Resources PLC (through its subsidiaries, Madras Aluminium and Balco) and Nalco.

Aluminium prices have fallen off a cliff from about $3,300 a tonne in July to $1,300 a tonne in January. The average cost of production for most of global aluminium producers are above $2,000 a tonne.

In China, the cost of manufacturing was higher at $2,400 a tonne due to the higher power and bauxite costs. The average cost of aluminium production for Hindalco and Nalco was lower at $1,000-1,200 a tonne due to abundant bauxite reserves.

In the short to medium term, aluminium prices to remain depressed following fall in demand, especially from China.

In case of zinc, though the cost of production has come down from $730 a tonne to $550-600 a tonne recently with sharp fall in raw material, the profit margins are expected to be under pressure due to the demand slowdown globally.

However, the government investment in infrastructure projects including power will prop up demand in India.

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