Profitability of Nalco, Hind Copper to improve on weak rupee: ICRA

Says due to weakening in rupee, base metal prices have gone up by almost 20% between May and Aug

The weakening trend in rupee is likely to help improve profitability of domestic non-ferrous metal producers like Nalco and Hindustan Copper as local prices are influenced by import parity prices, according to rating agency ICRA.

"ICRA expects the profitability of domestic primary producers in the non-ferrous metals sector to improve in the current year, following the rapid depreciation of the Indian Rupee against the US Dollar," the rating agency said today.

The rupee, which depreciated to a record low of 68.85 against the dollar on August 28, has recovered some ground and currently trading at around 62.

ICRA said base metal prices in India were influenced by import parity prices and because of weakening in rupee, prices have gone up by almost 20 per cent between May and August of the current year.

Jayanta Roy, Senior Vice-President and Co-Head, Corporate Sector Ratings, ICRA, said the profitability of the producers would improve notwithstanding the muted demand outlook in the near-term due to the uncertain macro-economic environment prevailing globally.

Growth in global aluminium consumption slowed down to around four per cent during January to June 2013 as against a growth rate of around six per cent in the same period last year.

In India, consumption of aluminium, which grew by around 6 per cent during 2012-13, continued to outstrip the production growth of about 4 per cent, resulting in a continued deficit situation.

"The scenario, however, is expected to change in the short-term, with large greenfield projects nearing completion. Although the rupee depreciation is expected to lead to an improvement in the profitability of Indian primary aluminium players, the gain would be partially offset by higher cost of imported raw material for the non-integrated producers," it said.

ICRA also expects Hindustan Copper (HCL) to benefit significantly from the rupee depreciation as against custom smelters, the impact on which would be significantly moderated by their large import requirement of copper concentrate.