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Led by smelter capacity cuts in China, pick up in demand in the European Union (EU) and North America markets, and higher input costs, average aluminium prices are expected to firm up by $150 per tonne globally.
Aluminium prices on the London Metal Exchange (LME) touched a three-year peak of $2,246 a tonne in December last year. Prices were strengthened by easing global inventory as around two million tonnes of aluminium smelter capacity went offline in China on mounting pollution concerns.
"In FY18, till the end of November, international aluminium prices had averaged at $2,000 per tonne. We expect, in the next financial year, prices would move up by $150 per tonne supported by capacity curtailments in China and demand pick up in EU and North America markets. Aluminium prices (on LME) have recorded the sharpest increase in this financial year of over $300 per tonne," said T K Chand, chairman and managing director at National Aluminium Company (Nalco) and Aluminium Association of India's (AAI's) president.
Aluminium prices have been on an upswing since 2015-16 when prices stood at $1,592 per tonne. Prices firmed up to $1,688 a tonne in the last financial year and rose further in FY18 to average at about $2,000 per tonne (till November 2017).
LME prices in the January-March quarter are expected to be in the range of $2,150-2,250 a tonne, helped by marginal deficit of the metal in the period.
"There is a short supply of aluminium and this factor is driving prices upwards. Prices will continue to be in the upward trajectory even in the next financial year. There is a heavy cost push factor as cost of alumina and other inputs like petroleum coke and coal tar pitch have jacked up," Chand said.
While buoyant prices would apparently bring cheer to Indian aluminium producers, the challenge is on containing costs. Vedanta, which is tipped to be the largest aluminium maker by the close of this financial year, has seen its production cost climbing. During the April-September period of 2017, Vedanta's aluminium making cost was higher by 22 per cent at $1,798 per tonne. The sharp increase in production cost was primarily because of higher domestic coal costs due to coal shortages and appreciation of the rupee vis a vis the dollar. Vedanta expects its aluminium production cost to mount further to $1,850-1,900 a tonne due to challenges related to coal and other input commodity inflation.
Chand said that domestic aluminium makers can focus on more value-added products like conductors, extrusions and products targeted at packaging, automobiles and transportation sectors. "Aluminium consumption in the country is projected to rise by 15-20 per cent over the next two to three years. The country's per capita aluminium usage is around two kg and it can potentially go up five fold. Aluminium producers can focus on diversification of the product base and new aluminium applications," he said.