Aluminium to harden on hopes of oil output freeze

Aluminium is likely to get costlier in the coming days due to the expected freeze on oil output to be clamped by the Organization of Petroleum Exporting Countries at its meeting with non-OPEC members on April 17.

The output freeze will spur price increase because energy accounts for about 30 per cent of aluminium's production cost.

Aluminium has been trading above INR 97-98 levels in Indian market over the past few weeks as oil prices have been inching higher. A rally in oil prices is likely to push the cost of production higher for aluminium prices. "However, the sustainability of oil prices above $42-43 a barrel is still doubtful," said Himanshu Gupta, senior market strategist at Karvy Commodities Broking. "Aluminium prices are expected to test INR 110-111 per kg in the medium term given the weakness in the dollar index, the production cuts and seasonal demand from China in April," he said.

Renisha Chainani, senior manager-commodity research at Edelweiss Financial Services said, "But the expected rally in aluminium will be short-lived and again it will go back to the lacklustre mood."

But the recovery in oil prices notwithstanding, base metals on the whole have seen a steep decline over the past few weeks. The latest GFMS survey suggests that copper market is expected to remain in surplus by 1,50,000 tonnes. The news that China is expected to export huge stocks of copper came as a sentiment dampener.

Aluminium prices have slipped to INR 306 per kg from recent highs of INR 343 in March. "Prices are likely to slip further lower towards INR 290 per kg amid bleak demand in power and construction sector from China," Chainani said.

Higher oil prices can lead to higher inflation and a speedy global recovery path, creating demand for industrial metals.