base metals: Aluminium, copper and zinc may not see further downside in 2019

The impact of the shutdown of Vedanta’s copper complex has resulted in a shortage of the metal in the domestic market.

Apr 03, 2019, 08.21 PM IST

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Kolkata: International prices of

base metals

like

aluminium

,

copper

and

zinc

are not likely to see further downslide in calendar year 2019, following corrections of 13%, 7% and 16% respectively in the last one year due to macroeconomic uncertainties on the back of ongoing trade wars. Since realisation in the Indian market is determined on an import parity basis, the depreciation of the rupee against the US dollar has provided a support to base metal prices in the domestic market,

ICRA Limited

has said.

The impact of the shutdown of Vedanta’s copper complex has resulted in a shortage of the metal in the domestic market. As a result, local downstream copper product manufacturers have been adversely impacted in FY2019, due to a lack of adequate primary metal in the market. “The situation remains uncertain as on date due to the lack of clarity on reopening of the plant”, Jayanta Roy, senior VP and Group Head, Corporate Sector Ratings, ICRA said.

An excess supply situation in domestic aluminium and zinc sectors is, on the other hand, likely to persist as domestic capacities are higher than demand, and manufacturers are expected to operate the plants at high asset utilisation levels. This in turn would lead to large export volumes. Off-take risks in the international market, however, would remain low, given the expected deficits in the global market and the cost competitiveness of the domestic manufacturers, ICRA said.

In step with price decline, global consumption growth of these metals also registered a slowdown in CY2018 and is expected to remain muted in the current calendar year as well, according to ICRA. Commenting on the situation, Roy said: “For the calendar year 2019, while deficits in the aluminium and zinc markets are likely to expand, the copper market is likely to be balanced. Consequently, the risk of a further downside in base metal prices seems low in the near term.” The global aluminium market has remained in deficits varying from around 0.07 to 1.01 million tonnes (mt) for the last seven quarters, due to capacity cut backs in China. The supply situation is unlikely to improve in near term with limited number of fresh aluminium capacities to be commissioned in CY2019.The copper market, which had been in a marginal surplus of nearly 0.12 mt in the first quarter of CY2018, returned to a large deficit in the next three quarters, impacted by the closure of 0.4 mt copper plant of Vedanta in Tuticorin. The global zinc market is also in a deficit for the last three quarters.

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Author: Prakash Poojary

Business Analyst

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