ICRA expects international prices of key non-ferrous metals to remain weak, at least in the near term. The weakness is a result of renewed concerns regarding the health of the global economy, especially the weak growth outlook of China, which is the largest consumer of base metals in the world.
Additionally, aluminium and copper prices would be impacted by surplus metals from fresh aluminium and copper smelter capacities that are likely to go on stream in CY2015.
Jayanta Roy, senior vice-president and co-head, Corporate Sector Ratings, ICRA said, "While both aluminium and zinc prices have registered corrections in the current month after seeing improvements in the previous calendar year, copper prices have largely remained under pressure since the beginning of the second half of CY2014."
A growth of almost 6% in global aluminium consumption, coupled with stagnating production levels following curtailments of production capacities, had turned the global aluminium demand-supply position into a deficit in CY2014. Consequently, aluminium realizations in the physical market improved to 2200-2300 USD/MT in early December 2014 from 1800-1900 USD/MT back in January 2014. However, since then, concerns about the global economy resurfaced and resulted in a sharp fall in LME prices in January 2015. Demand-supply mismatch in the physical market, nonetheless, continues to result in high premiums, which still provides a support to overall price levels.
On the domestic front, aluminium capacity is currently at a surplus compared to domestic consumption. However, the utilization rates of recently commissioned smelters would continue to be constrained by raw material and fuel availability issues, narrowing the gap between demand and supply. The recent de-allocation of captive coal blocks allocated earlier to aluminium players increases operational challenges for the affected companies. In ICRA's opinion, primary aluminium players therefore are expected to be among the aggressive bidders for captive coal mines in the upcoming auctions.
During CY2014, world apparent copper demand is estimated to have exceeded refined copper supply. However, as per International Copper Study group (ICSG), growth in mined and refined copper production is likely to outpace demand growth in CY2015, leading to a surplus in the refined copper market, which has kept copper prices under pressure since July 2014. For custom-smelters on the other hand, rising mine output has lead to an oversupply of concentrates compared to smelting capacity, thus benefitting them in terms of buoyant Tc/Rc rates. The two leading Indian copper producers, viz. Hindalco Industries and Sesa Sterlite, have also benefitted from this trend.
Zinc prices had been mostly on an uptrend since the beginning of CY2014. This was on account of the gradual fall in zinc mine supplies (fall of 0.2% in 9mCY2014 over 9mCY2013).
ICRA expects this trend to continue, which is likely to limit the availability of the refined metal in the market in future as well. However, over shorter time periods, prices would continue to witness volatility, as has also been seen in the current month, when they declined along with other base metal prices internationally.
