Vedanta to weather note ban impact

Vedanta's business divisions are expected to have had higher volumes in the December quarter

With demonetisation having no impact on the non-ferrous metals segment, London-based Vedanta’s standalone business divisions are expected to have had higher volumes in the December quarter from the corresponding period last year, said analysts.

Vedanta’s standalone businesses are copper, iron ore, aluminium and power, together forming almost half of the consolidated revenue.

“There is a significant export element in copper, aluminium and iron ore this time (December quarter) and, hence, we might see good volumes. Alongside, iron ore prices have moved up and so have aluminium. This should help realisations,” said Ritesh Shah, senior analyst with Investec Securities.

In recent quarters, relatively weaker metal prices and dwindling volumes from the iron ore segment have been impacting total net sales (standalone). Since early 2016, global iron ore prices have more than doubled, helping mining companies to get better realisations. With ore prices at $60-80 in the December quarter, realisations are seen improving significantly for this business, said brokerages. In aluminium, with the average global price rising to $1,700 a tonne in the December quarter from $1,600 in the September one, realisations in this segment are also seen as moving up. 

The company produced 156,040 tonnes in October-November (December figures are still to be reported), up from 142,429 tonnes in the corresponding period last year. “The non-ferrous segment is organised. So, demonetisation will have no impact on volumes for the quarter,” says Shah.

Brokerages feel that as alumimium volumes will have picked up, power sales would have moved in line, since the power produced by the company is largely used for the aluminium business.

The management could not be reached for comments, due to the ongoing silent period ahead of announcing the quarter’s earnings.

With copper treatment and refining charges (TC/RC) being annual contracts, brokerages said, realisations would remain flat sequentially. October-November production was 66,185 tonnes, as against 54,000 tonnes a year before. Since the metals sector is cyclical in nature, volume comparison is made on a year-on-year basis; realisations are compared sequentially. The year 2017’s aluminium price trend looks promising for Vedanta. Primary aluminium production is expected to fall short of demand by a good 3.5 million tonnes in 2017, compared to a minor shortfall in 2016, said an Angel Commodities report. Demand, on the other hand, looks robust as primary aluminium imports have exceeded 10,000 tonnes every month since June and jumped to 41,853 tonnes in November, due to Chinese construction appetite, it said.

“After assessing all the factors, aluminum looks the best placed in the base metals pack and, hence, returns of 25- 30 percent are expected in 2017,” said the Angel Commodities report.

In copper, the 2017 TC/RC benchmark has been set at $92.50 a tonne and 9.25 cents per pound, five percent less than the $97.35/mt and 9.735 cents/lb in 2016. This clearly indicates the markets are not as much oversupplied, said the Angel report.