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Indian aluminium producers likely to benefit from US sanctions on Rusal

Friday, Apr 13, 2018

   The Quint reported that Indian aluminium producers stand to gain as US sanctions on United Co Rusal, the world’s biggest producer of the base metal outside China, will tighten the supply globally. Integrated domestic aluminium producers with presence from raw materials to the final product like Hindalco Ltd and National Aluminium Company Ltd stand to gain more than Vedanta Ltd, said Goutam Chakraborty, analyst-institutional research at brokerage Emkay Global Financial Services.

  Aluminium prices on the London Metal Exchange jumped about 8 % in the past two days after sanctions on 12 Russian companies, including billionaire Oleg Deripaska-led Rusal, for Russia’s intervention in Ukraine and its meddling in the US elections. Rusal accounts for about 13 percent of the global output outside China. It produced 3.71 metric tonnes of primary aluminum in 2017 and earned about 14 percent of its revenue from the US, its largest importer, according to a report by Edelweiss Securities.
  Mr Anil Agarwal chairman of Vedanta Ltd told BloombergQuint that the prices of aluminium could rise up to 50 % if sanctions on Rusal continue. He expects prices to vary between USD 2,500 and USD 3,000 a metric tonne from the current minimum average of USD 2,000-2,200.
  The US action against Russia is not the only reason aluminium prices could go up. Prices of alumina, a key raw material, also rose 26 % in the past one month due to a partial shutdown at Alunorte, the world’s largest alumina refinery located in Brazil. That’s expected to further impact the aluminium supply chain.
  In fact, aluminium prices have fallen 6 % so far in 2018 compared to a 20 % rise in alumina.
  Aluminium prices are expected to hold strong due to supply disruption, alumina woes and a lower inventory, Edelweiss Securities said. Higher alumina and aluminium prices will benefit Hindalco due to its integrated operations and Vedanta for its ability to pass on the higher aluminium costs, said the brokerage. It sees some near-term headwinds for Hindalco’s subsidiary Novelis as it may struggle to pass on higher costs.
  Aluminium has the best demand outlook among base metals, Kotak Securities said. The brokerage has a positive view of the non-ferrous segment. It expects Nalco’s earnings to benefit the most from the rise in prices.
  The state-run company derives 80 % of its earnings before interest, depreciation and amortisation from alumina sales. In an earlier interview with BloombergQuint, the company management said every USD 10 rise in alumina prices boosts its Ebitda by INR 85 crore.

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