Global aluminium deficit may widen on the back of Chinese capacity cuts: ICRA

The leading Indian rating agency ICRA said on Tuesday that it expects the global aluminium deficit to widen this year on the back of Chinese production drop which may total up to 4 million tonne due environmental crackdowns.

The agency said that base metal prices which are currently on an upward trend are expected to stay buoyant during the rest of FY2017-18.

ICRA in its latest report said it "expects the deficit in the global aluminium market to widen in 2017 as a result of at least 4 million metric tonnes (MMT) of capacity cutbacks in China, due to the recent regulatory developments in the country."

Explaining the effect of higher metal prices on Indian primary aluminium industry and other key non-ferrous industries, Jayanta Roy, SVP and Group Head, Corporate Sector Ratings, ICRA said, "Despite the sharp increase in metal prices, operating profitability of the domestic primary non-ferrous industry is likely to be capped in FY2018 by cost pressure on some of the key inputs in production."

The prices of alumina have risen sharply in the current financial year leading to an increase in overall cost of production of aluminium.

Talking about the demand-supply scenario in India domestic market, Roy said that consumption of aluminium registered about 6-7 per cent growth across in Q1 FY2018.

While consumption of aluminium is expected to further improve through the rest of FY2018, surplus availability will continue to provide a capping effect on price. This is because domestic capacity is still high and manufacturers are expected to operate plants at a high asset utilisation level. This would drive up aluminium export volumes in the medium term.

Globally, aluminium demand is expected to outdo supply in FY2018.