According to a recent statement by the Investment Information and Credit Rating Agency (ICRA), domestic demand for non-ferrous metals like aluminium and copper is expected to grow 10 per cent in FY25. This expectation is based on a consistent trend in realizations and a moderated pressure on input costs. The report anticipates a healthy domestic demand growth of approximately 10 per cent for FY2025, notably surpassing the expected global demand growth of around 2 per cent.
The sharp correction in Tc/Rc has adversely impacted the copper smelter margins and top Chinese smelters recently agreed to embark on production cuts at loss-making plants, without specifically highlighting the extent of the reduction,” ICRA said.
Prices showed varying trends
In March 2024, international prices for the three non-ferrous metals—aluminium, copper, and zinc—showed varying trends. Aluminium and zinc prices remained relatively stable within a specific range, while copper prices surged by approximately 5 per cent. This increase was primarily attributed to anticipated supply reductions from Chinese smelters. As the gap between demand and supply widens, copper prices are expected to be further strengthened.
Additionally, unexpected supply disruptions occurred in copper mines located in Chile and Panama. This led to a substantial correction in treatment and refining charges (Tc/Rc), with the current spot rate at around $12/tonne. This is significantly lower than the $80-85 per tonne range observed in the first nine months of FY2024.
Domestic market
In the domestic market, the apparent consumption growth of non-ferrous metals remained robust, ranging between approximately 10-13 per cent in the first nine months of FY2024. This growth was supported by the Government's focus on infrastructure development and a favourable demand from the renewables/electric vehicle sectors. ICRA has indicated that while demand might experience some softness in the upcoming two quarters due to the general elections, the overall growth is expected to remain healthy at around 10 per cent for FY2024 and FY2025.
Moreover, the sustained moderation in coal prices could potentially relieve input costs. ICRA has observed that the domestic e-auction premia on coal have decreased in recent months, reaching around 40 per cent in February 2024. This is a notable decrease from the exceptionally high levels exceeding 180 per cent seen in the corresponding period of the previous year. Additionally, caustic soda prices and calcined pet coke have also shown moderation in the current fiscal year.
Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA, said, “With input costs remaining largely under check, the domestic entities are expected to register operating margins of 17-17.5 per cent in FY2025, like the levels estimated in FY2024. That said, with the commodity upcycle moderating since FY2023, domestic entities’ cash flows have reduced from their record highs, thus increasing their dependence on external financing to meet their committed expansion plans. This trend has been visible from the 13.8 per cent and 14.3 per cent growth in the sector’s bank borrowings in FY2023 and FY2024 respectively. Therefore, the industry’s leverage (total debt to operating profits) has steadily increased from 1.8 times in FY2023 to ~2.2 times in FY2024 and FY2025. However, these leverage levels are lower compared to the FY2016-FY2020 average of ~3.5 times reported during the pre-Covid era. At the current level, the industry would remain resilient to project-related risks”.
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