Nalco cuts price; Hindalco, Balco likely to follow suit

National Aluminium Co­m­pany (Nalco) has cut aluminium prices by around INR 4,000 per tonne for the month of July in line with London Metal Exchange (LME) prices to be effective from July 1. Other aluminium producers such as Hindalco and Balco usually follow the price trend set by the state-owned Nalco.

While aluminium firms will witness pressure on margins due to softening of the white metal prices, auto manufacturers, real estate developers, aircraft manufacturers will witness improvement in their margins with their input costs going down, experts said.

“We have reduced aluminium prices in line with LME prices. Although demand is there but aluminium is getting imported at a lower cost so we had to reduce the price,” a senior Nalco official told FC.

In June, the company had increased prices by INR 5,000 per tonne. Globally, demand is modest and the aluminium prices are range-bound. In the last one year aluminium prices have declined to around $1,800 per tonne from $2,100 per tonne. Aluminium is mostly used for manufacturing of aircraft, auto components, electrical equ­i­pment, building construction among others.

Analysts said that the softening of aluminium prices is likely to help the auto companies improve their margins, which is struggling with sluggish sales and high input costs mainly due to rise in commodity prices.

“Usually other aluminium companies like Hindalco, Balco, follow the price trend taken by the public sector owned Nalco. Softening of aluminium prices will help the auto companies,” said Bhavesh Chauhan, an analyst at Angel Broking.

Jnaneswar Sen, senior VP, sales and marketing at Honda Siel Cars India said, that the decline in prices will definitely help the auto firms to improve margins. It would be better if the prices remain soft consistently for the next few months, as the contractual prices will fall significantly thus helping the struggling sector to improve their margins.

According to an Angel Broking report non-ferrous companies are expected to continue to face a double whammy of declining product prices coupled with higher input costs.

“Base metal prices have declined steeply over the past one year and we expect realizations growth to remain muted during 2013-2014. Although several aluminium companies globally have announced production cuts, we are yet to see any meaningful decline in production. Thus, lower realizations coupled with higher and sticky prices of key inputs are expected to hit margins of aluminium firms during 2013-2014,” said Chauhan in the report.