Aluminium: Melting point

Even the little bit of sheen that’s left seems to be wearing off. For the first time in six years, Alcoa, the largest producer of aluminium in the US, with revenues of $ 26.9 billion, posted a quarterly net loss of $1.19 billion in the December 2008 quarter. Alcoa had a announced production cut first in June 2008 and total cuts till date amount to about 7,50,000 metric tonnes or 18 per cent of total production. The management says demand for aluminium globally may decline 2 per cent in 2009 after falling 3 per cent, to about 36 million tonnes, in 2008.

This cannot be good news for Hindalco whose subsidiary Novelis caters mainly for the auto and construction sectors in the US and European markets. In the September 2008 quarter Novelis posted net losses of $ 103 million when prices for aluminium were around $2800 levels. Since then, prices are off by 47 per cent, at $1483 per tonne, and are now hovering around five year lows (source: Bloomberg). Moreover, the inventory pile- up on the LME has risen 108 per cent to 2.43 million tonnes, the highest levels since December 1993. Analyst estimate that Hindalco' s consolidated revenues could see a fall of around 13 per cent in 2009-10 and the net profit a steeper drop of 50 per cent. That’s if prices remain where they are. For the current year revenues are estimated at Rs 67,000 crore and net profits at Rs 850 crore.

The Rs 4,988 crore Nalco, which earns around 40 per cent of its revenues from overseas markets, is now seeing its cost of production perilously close to its selling price. Analysts have pencilled in a fall in revenues of about 10 per cent in 2009-10 and a drop in net profits of around 25 per cent. In the first half of 2008-09, the firm posted net sales growth of 21 per cent to Rs 3,004 crore while net profits grew at 9.5 per cent to Rs 970 crore. According to a CLSA report around 40 per cent of aluminium capacity, in the world, today is loss making. This has resulted in some big players like Alcoa, Rio Tinto, Vale and the Chinese Chalco trimming production.