Aluminium makers stare at consumption slowdown on auto sector stress

The prevailing economic slump and auto sector stress are likely to moderate consumption of aluminium products

Buffeted by headwinds like soaring imports and lacklustre LME (London Metal Exchange) prices, the country's primary aluminium producers are in for fresh trouble as consumption is likely to decline.

A firm consumption of aluminium has been one of the bright spots for domestic aluminium makers, helping them sustain operations against volatile international prices. However, the prevailing economic slump and auto sector stress are likely to moderate aluminium products' consumption.

“Going ahead, we see challenging times for primary aluminium players as consumption is likely to decline in CY (calendar year) 2019 in the wake of the auto slowdown and the expected reduction in aluminium deficit," a report by Edelweiss noted.

However, the outlook for secondary aluminium producers is expected to be positive, given a robust beverage can market.

Global aluminium markets reeled from a deficit of 0.07 to 1.01 million tonnes (mt) for the last nine quarters due to production cutbacks in China. In India, aluminium production showed an uptrend during the second half of calendar 2018 but scaled back between March and June 2019 owing to shutdown of some loss making capacities.

In 2018-19, the country's aluminium demand expanded by 10 per cent, propped up by firm GDP and growth in aviation, automobiles, infrastructure and electrical sectors. But a slowing economy and flagging demand has unnerved the alumimium makers.

Also, LME prices of alumium having been trading at tow-year lows for the past four months. Currently, aluminium price on the LME has sunk to $1713 per tonne for the cash buyer (as on October 24).

On a global context, trade wars to debilitate aluminum demand growth with CY 2019 consumption growth in China expected to drop to 1–1.5 per cent versus earlier expectations of 1.75–2.25 per cent.