Hindalco aluminium business may face challenges in near term

Refined copper consumption growth is seen at 4.9% in 2013

Hindalco Industries Ltd’s aluminium business is expectd to witness challenges in the near term on the back of weak prices of the metal in the global market, Chairman Kumar Mangalam Birla said in the 2012-13 annual report.

Also, the interest burden from its expansion projects will have a bearing on the company’s earnings in the current financial year. However, in the long term, the company remains well-placed with a addition of large assets to the portfolio, said Birla.

“As these projects ramp up to their full potential, your company will see an exponential growth in volumes and profitability in the years ahead,” the chairman told shareholders.

Recently, the company’s Utkal alumina refinery in Odisha went onstream, while its major equipment at the Hirakud plant have been commissioned.

At its Mahan aluminium smelter in Madhya Pradesh, the company has been able to tap the first metal.

In the long term, aluminium demand continues to remain strong with global aluminium consumption expected to increase at a compound annual growth rate (CAGR) of six per cent over the next five years, the report said.

For the copper business, in the near term, the pace of copper supply growth relative to demand is expected to keep the market in surplus till 2017, said the report. In 2013, the refined copper consumption growth is seen at 4.9 per cent, driven largely by China and North America, it said. Hindalco runs custom smelting operations and its profits do not depend on copper prices, but on variables such as treatment and refining charges earned, and realisations on sale of by-products such as sulphuric acid, phosphoric acid, and di-ammonium phospate among others.

Aluminium contributes nearly 75 per cent to Hindalco’s net profit and 35 per cent to its net sales, whereas copper contributes 25 per cent to profit and 65 per cent to revenue.