Jan. 18 -- Hindalco Industries Ltd., India's biggest producer of non-ferrous metals, may say third-quarter profit more than doubled as rising demand from construction companies and carmakers boosted prices of aluminum.
Net income probably was 6.25 billion rupees ($140 million) in the quarter ended Dec. 31, from 3.01 billion rupees a year ago, according to the median estimate of seven analysts surveyed by Bloomberg. State-run rival National Aluminium Co., or Nalco, may say profit rose 43 percent to 5.62 billion rupees.
Hindalco and Nalco gained from aluminum prices that were 33 percent higher on average from the year-ago quarter. Prices of aluminum and alumina, the semi-finished material used to make the metal, may fall this year as rising supply is expected to meet demand in China, the world's biggest user.
"A glut in alumina will depress aluminum prices," said Jayesh Shroff, a fund manager at SBI Funds Management Ltd. in Mumbai. "Prices have taken a knock and may stay volatile." The fund sold 2.6 million shares of Hindalco and 562,000 shares of Nalco last month, according to Bloomberg data.
Hindalco's shares have fallen 9 percent in the past three months, compared with the 10 percent gain in India's benchmark stock index. Nalco shares have dropped 1 percent. The company reports earnings on Jan. 22 and Hindalco three days later.
Alcoa Inc., the world's biggest aluminum maker, said Jan. 9 profit rose 60 percent in the fourth quarter to $359 million as metal prices gained. Sales climbed 20 percent.
Surplus Output
JPMorgan Chase & Co. expects aluminum prices on the London Metal Exchange to fall 11 percent this year and 17 percent next year as supplies exceed demand, Hong Kong-based analysts Feng Zhang and Emily Zhang wrote in a note dated Jan. 5.
Aluminum for delivery in three months in London climbed 0.5 to $2,690 a ton yesterday, its first day of gains in five. The metal has declined by a fifth from its May 11 peak of $3,330 a ton and is down 5 percent so far this year.
"We expect a surplus in 2007 and a price decline of 12 percent year-on-year in fiscal year 2008," Citigroup Inc. said in a Jan. 16 note. Citigroup rated Hindalco shares a "sell" in its first coverage of the company.
Hindalco sells aluminum products mainly in India at prices that are linked to the London Metal Exchange.
Hindalco's copper-refining business may report a 12 percent decline in operating profit because of lower copper output and a fall in refining fees, Merrill Lynch & Co. India analyst Vandana Luthra said in a Jan. 4 note.
Copper Fees
Copper refiners in India and Korea will earn $60 a ton for treatment charges and 6 cents a pound in refining fees to turn copper ore into metal this year. That compares with $95 a ton and 9.5 cents earned in 2006. Fees drop when mine output lag behind smelting capacity.
Hindalco is yet to restart its 70,000-ton smelter, which it shut in the last week of November because of declining treatment charges, Chief Financial Officer Sunirmal Talukdar said Jan. 12. The company can refine 500,000 tons of copper annually.
While copper-refining has accounted for about half of sales the past two year, its contribution to profit before interest and tax has been less than 26 percent.
Earnings growth at Nalco may slow in the quarters ahead because of a slump in prices of alumina, which brings in 40 percent of sales, said Arvind Desai, head of research at Mumbai- based Niche Brokerage Pvt.
Alumina Slump
Alumina prices have more than halved from the March 31 peak of $627.5 a ton due to rising production in China, the biggest user of the material. Alumina traded at $205 a ton on Jan. 7 in the European Union, according to Metal Bulletin.
"Alumina is unlikely to see a major boost," Desai said.
Nalco exported more than half its 1.6-million ton alumi
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