Aluminium price hike may affect Indian automotive industry’s profitability: ICRA estimates

The Indian rating agency ICRA estimates that the sudden surge in aluminium price by 30 per cent over the last two weeks owing to US sanctions against Rusal may impact the Indian automotive industry’s profitability and also the profitability of auto component suppliers as well as OEMs in the near term, leading to a surge in vehicle price, especially of those that are primarily made of aluminium, as vehicle manufacturers would be passing the cost pressure to the customers, as analysed by ICRA.

 The US sanctions imposed on Rusal is estimated to take away more than 6 per cent of global aluminium supply and 14 per cent outside China, as per the reports.

Ashish Modani, Assistant Vice President, Corporate Sector Rating, ICRA said, “Already, automobile industry is grappling with commodity prices pressure over last one year, and this sharp increase in aluminium prices in recent weeks will further dent their operating profitability.”

The rating agency also said that it expects industry-wide credit trends to remain stable as there would be a robust demand coming in from the OEM segment in the near term and healthy cash accruals. It further added, “Considering the increasing content per vehicle due to various technological advancement as well as regulatory measures (emission, safety regulations), the growth in the auto component industry will be relatively higher than the underlying growth in the automotive industry in the medium to long term.”