NALCO vs Vedanta’s shares in NIFTY hint at the international alumina market’s role in their respective businesses

Shares of National Aluminium Company Limited (NALCO) lost value as the Nifty Metal index wrapped up the first week of 2025 on January 3. The Metal index itself remained relatively subdued, gaining just over 1 per cent at its highest point during the day before closing flat.

While NALCO’s shares slipped over 4 per cent on Friday, Vedanta emerged as a gainer, ending with a 2 per cent rise. At one stage, Vedanta’s shares were up 3.5 per cent. The opposing trends in these aluminium industry giants were driven by movements in the alumina market, which saw frequent volatility throughout 2024.

According to a Reuters report, alumina prices surged 70 per cent in 2024, reaching a record RMB 5,645 ($779.77) per tonne on the Shanghai Futures Exchange. Contributing factors included disruptions in bauxite supplies from Guinea and Brazil, as well as workforce majeure in Australia. Aluminium prices also climbed approximately 7 per cent during the year.

However, the February futures of alumina fell 6 per cent in the overnight market. While no specific reason for the drop was immediately clear, increasing global supply is leading to price stabilisation. Analysts note that the normalisation of alumina prices comes after a sharp run-up, with increased production capacities expected in 2025 from regions like Indonesia, India, China, and Guinea.

NALCO hit by falling alumina prices

For NALCO, which sells a substantial portion of its alumina output in the open market, falling prices directly impact profitability. In the December quarter, the average alumina price stood at $700 per tonne, up $150 per tonne sequentially. However, the recent price decline could undermine the 40 per cent of NALCO’s Earnings Before Interest and Tax (EBIT) that comes from its alumina vertical.

As a result, NALCO’s shares ended 4.3 per cent lower on Thursday at INR 207.2 (USD 2.42).

Vedanta’s benefit from lower costs

In contrast, Vedanta, which sources 50 per cent of its alumina requirements from the open market, stands to benefit from lower prices. Reduced alumina costs translate into improved margins for the company, making the price drop a positive development. Shares of the Anil Agarwal-owned miner rose 1.7 per cent to INR 457.35 (USD 5.34), continuing to reflect investor optimism.

Outlook for 2025

The global alumina market faces significant shifts in 2025, with new production capacities expected to further increase supply and exert downward pressure on prices. While this benefits cost-sensitive players like Vedanta, alumina producers like NALCO will need to adapt their strategies to mitigate potential margin erosion.