Consumption of non-ferrous metals to dip 3-8% in 2020 due to Covid-19: Icra

Consumption of non-ferrous metals like copper and aluminium would contract significantly this year due to the COVID-19 pandemic, rating agency Icra said on Thursday.

The pandemic has severely impacted the global automobile, construction and electrical machinery industries, which together contributes 75-85 per cent to the global non-ferrous metal demand, Icra said in a statement.

"Consequently, Icra expects that in the current calendar year, consumption of these metals would contract significantly, ranging from 3-4 per cent for copper and zinc; and up to 8 per cent for aluminium on a Y-o-Y basis," it said. However, prices of these three non-ferrous metals have strengthened sharply in the last five months.

The extent of recovery has varied factoring in the evolving demand-supply dynamics of the respective metal.

As demand for aluminium is the worst impacted among the three, its international prices are currently down by 2 per cent on a year-on-year (Y-o-Y ) basis, it said.

On the other hand, prices of copper and zinc have strengthened by 14 per cent and 2 per cent compared to the levels traded a year back.

The pandemic has not only impacted metal consumption, but has also disrupted mining activities of both copper and zinc ores, which has restricted availability of these metals in the physical market, it said.

The prevailing buoyancy in prices is a result of this disruption in metal supplies. Additionally, prices may also have received a support from financial deals on the metals. Such deals have turned lucrative under the current market dynamics, on the back of abundant liquidity in global markets. However, there is considerable uncertainty on both demand and supply conditions of non-ferrous metals globally.

Consequently, Icra believes that the resulting scenario would keep non-ferrous metal prices volatile, going forward, it said.

"The near-term outlook of global economy is adverse as the number of new COVID-19 cases remains high, and recurring outbreaks have been reported in many countries. Consequently, demand outlook of these metals too is negative, and sustainability of prices at current levels is doubtful purely based on fundamentals," Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA said.