June 29, 2015 1:39 pm Published by

Aluminium prices fold again

Amidst the metal meltdown last year — when iron ore and copper prices collapsed — aluminium was the bright spot.

The light-weight metal saw prices rise from under $1,700 per tonne in early 2014 to over $2,100 per tonne in November 2014, as delivery premiums remained high. But the metal then fell to $1,700 and rose a bit to $1,900 a tonne by May 2015.

Just as aluminium manufacturers heaved a sigh of relief, the metal resumed its downward slide and hovers close to $1,660 a tonne currently. This is a six-year low. So, are low aluminium prices the new normal?

Lower premiums

One reason for the lower price is the steep fall in delivery premiums, which indicate waiting periods faced by buyers to receive delivery. From a high of $532 per tonne in late February, the US mid-West premiums are down to around $185 per tonne currently. Aluminium delivery premiums were at historical highs in 2014, as warehouses registered with the LME faced delivery bottlenecks. Analysts estimated that about 60-70 per cent of the stocks were possibly tied up in commodity financing transactions and hence not available for physical delivery. The LME formulated stricter regulations to cut waiting time, but the move was stayed by a lawsuit from aluminium producer Rusal. As a result, premiums continued to soar.

The court ruled in favour of the metal exchange in October 2014 and new rules have been put in place from February 2015. This has helped reduce delays and lower spot aluminium prices.

On the fundamental side, aluminium supply, especially from China, has been increasing, adding to the price pressure.The country added 2.6 million tonnes of production capacity in 2014 and plans to add another 3.6 million tonnes in 2015.

This is much higher than the 0.5 mt addition in the rest of the world during the same period. Overall global aluminium production capacity is estimated to increase to 68.5 mt by 2015.

Even as aluminium smelters globally are being shuttered as prices dip, China has been boosting production. Output from Xinjiang province surged over 60 per cent in the first four months of 2015.

The cost of production at these smelters is low, thanks to captive coal mines and power plants. And the bulk of the production is being exported, as weak local demand has led to depressed prices. Higher exports from China have contributed to the crash in global aluminium prices.

China’s production ramp-up was helped by ample global ore availability.

The country faced issues in sourcing bauxite ore after Indonesia banned exports. But ore imports from other countries have since increased. Additionally, companies such as China Hongqiao are investing in Guinea in Africa, which holds over a fourth of the world’s bauxite reserves. This should help ensure improved ore supply in the future.

Price outlook

So, with the ore issue under control and higher production capacity, Chinese production seems to be on a firm wicket. Therefore, lower aluminium prices may be here to stay.

The only positive for aluminium producers is the recent uptrend in demand. One main demand driver for aluminium is the automobile sector, which is progressively replacing heavy steel with lightweight aluminium to meet more stringent fuel efficiency norms.

For example, in the US, average fuel economy must be doubled — from 27.5 miles per gallon in 2012 to 54.5 miles per gallon by 2025.

Manufacturers, such as Ford, have already launched aluminium body vehicles and others are looking to increase aluminium content.

This is expected to boost demand, putting a floor on prices.

India may raise import duty on steel

India is expected to take a decision on further raising import duty on steel within a week, Minister of Heavy Industries and Public Enterprises Anant Geete said, in a bid to protect local producers from surging imports from countries such as China and Russia.

Last week, the Government raised import duty to 10 per cent from 7.5 per cent on flat steel and to 7.5 per cent from 5 per cent for long steel products, to stem the flood of imports.

Many steel companies, such as Tata Steel Ltd, JSW Steel Ltd and Kalyani Steels Ltd, have seen profits come under pressure in recent quarters due to surging imports of steel.

The heavy industries ministry will talk to Finance Minister Arun Jaitley on checking the quality of steel being imported into India, Geete told reporters at the sidelines of an industry conference in Mumbai.

Steel companies feeling the heat as projects face hurdles

Five of the top ten private steel companies are facing sever financial stress due to delay in implementation of their projects, according to the Financial Stability Report published by RBI on Thursday.

Listing out the woes of the industry, the central bank in its half-yearly review of the economy said steel companies’ expansion projects are getting delayed due to problems with land acquisition, environmental clearances among other factors.


Though the sector holds good long-term prospects it is currently under stress, necessitating a close watch by lenders.

The industry is also facing other challenges with respect to access to capital for investment, shortage of iron ore, low-paced mechanisation of mines, lower level of capacity-utilisation of coal washeries, dependence on imported coking coal and volatility in the currency market.

Accessing the overseas market, the report said the industry faces high domestic port charges amidst low domestic demand.

China and Brazil continue to dump steel in India due to lower customs duty on stainless steel while exports from India have fallen substantially due to subdued demand and levy of 50-55 per cent anti-dumping duty by the US on Indian SAW pipes, it said.

The depressed global steel prices have taken a toll on Indian steel companies on the pricing front in domestic market. A mismatch in steel pricing leads to large-scale imports.

“These factors have created stress in the sector in general and more particular in case of private sector companies,” the report said.

Currently, India is the third largest producer of steel in the world. 

The Centre has taken many initiatives such as increasing the import duty from 5 per cent to 15 per cent for finished and semi-finished steel, encouraging use of green technologies, improved logistics, increased emphasis on research and development, and relaxation of ECB rules, which will help redress the problems faced by the industry in the long run. 

In order to boost domestic demand, it said, the 12th Five Year Plan has envisaged an estimated investment of about $one trillion to build urban infrastructure over the next 20 years. 

Silver lining

Other factors such as estimated increase of the urban population to 600 million by 2030, emergence of the rural market for steel by-projects such as Bharat Nirman, the PraLisn Mantri Gram Sadak Yojana, the Rajiv Gandhi Awaas Yojana and the recent push for highway projects by the government, will help in raising domestic demand for steel. 

On a positive note, the report said India seems poised to become the second largest producer of steel in the world in the years to come. 

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This post was written by Atlantic Admin