India Ratings and Research projects market surplus for aluminium in India

According to a report of India Ratings and Research, the base metal sector is likely to register a surplus market on account of new capacity ramp-up amid weak demand for the next financial year. In India, the production capacity of aluminium is expected to be more or less double in FY18.

An increase in coal prices worldwide had led a positive impact on base metal prices though the consumption of metal has weakened.

The report stated that the increase in demand of base metal from the US due to investment in infrastructure projects will not fully offset the shrinkage in demand from China. An instant demand boost is not possible as it takes time in executing the project.

China accounts for 45%-50% of the global consumption of base metals such as aluminium, copper and zinc, while the US represents 8%-10%, as per reports.

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"Although domestic aluminium demand is likely to improve, given the size of new capacity addition, incremental volumes will have to be pushed in low-margin yielding export markets. The addition of new, efficient capacity, which benefits from low power costs, by China and Saudi Arabia will recalibrate the cost structure in the sector and, therefore, prices."

"The key end-user industries of base metals such as automobile, infrastructure, electricals and equipment manufacturing are likely to register steady demand growth, while demand from real estate sector would decline. Industry participants are likely to generate higher free cash flow, driven by higher average metal prices and an increase in available capacity," it added.