The “COVID-19” outbreak: Indian Aluminium producers keeping their eyes at accumulating inventory

Indian aluminium producers are keeping their eyes at the possibility of accumulating of metal as COVID-19 outbreak has compressed the domestic consumption besides leading to a demand shrinking among importing countries.
The present situation is like hocus-pocus for the aluminium companies that were already struggling due to weak commodity prices.

The major global auto companies have reduced their production and the construction industry has also remained standstill, while the demand from the user industries has dropped immensely. The production of aluminium is expected to outpace demand which will exert pressure on aluminium prices unless substantial production cuts are announced by smelters in China and the rest of the world.

In the Indian market, the flagging demand, whereas the slow pace of production and the fall down of exports has discouraged the primary producers.

A senior official of a leading aluminium company said: “The nationwide lockdowns has led to shrinking aluminium demand from user industries like power transmission, automobiles, construction and white goods. India is a net exporter of aluminium. But exports have suffered due to contracting demand from importing countries post the surfacing of COVID-19 pandemic.” 

The domestic aluminium demand has declined by 0.4% between April'19 and January’20 this fiscal against the same period of 2018-19. Moreover, the country’s primary aluminium production drops 1.6% to 3.04 million tonnes in this period due to weakness in both international and domestic demand. Exports in the period have also recorded shrink as well as the imports.

Aditya Birla owned Hindalco Industries is the only producer to have registered growth in aluminium production during the period. Rest of the primary producers- state-run National Aluminium Company (Nalco), Vedanta Ltd and BALCO witnessed their aluminium output sliding. Nalco’s production was down 4.6% whereas, for Vedanta and BALCO, output fell 3.3% and 2.2% respectively.

As per the report, there is a prediction of global aluminium prices to be under pressure owing to the prevailing COVID-19 pandemic. Soft international prices are bound to have a bearing on the margins and bottom line of Indian aluminium makers as domestic prices hinge on global price movements.

The prices of aluminium are likely to stand under huge pressure due to uncertainty related to extensions of lockdowns due to COVID-19 epidemic. Aluminium is widely used in the power sector in India and the gross slowdown in manufacturing facilities due to lockdowns across the country will hit demand for the metal. Demand from other user industries like automobiles is also expected to remain muted as major automobiles manufacturers have already shut down their plants due to lower demand and lockdown measures announced by the government.