Base metal prices unlikely to correct further: Icra

The global prices of non-ferrous metals which have witnessed a correction due to global macroeconomic concerns in the last three months is unlikely to go down further, a report said.

The global prices of non-ferrous metals have witnessed a correction in the last three months because of concerns on the global macroeconomic health, on the back of ongoing trade wars. The demand supply fundamentals, however, would not justify such a correction, as the global market of these metals are currently in deficit, Icra said here.

"As for the full year 2018, the aluminium and zinc markets are likely to remain in deficits, and the copper market too may turn only into a marginal surplus. Consequently, the risk of a further downside in base metal prices seems low as on date," Icra senior vice-president Jayanta Roy said.

The deficit in the aluminium market has progressively expanded in the last few quarters, because of capacity cut backs in China. While production in China is estimated to have increased in the current quarter, with new capacities coming on stream, the same is unlikely to result in any sharp change in the demand-supply balance.

Additionally, the trade sanctions imposed by the United States Treasury Department against UC Rusal (Rusal) which is one of the largest manufacturers of aluminium in the world, stands as on date. Icra notes that Rusal produced around 4 million metric tonne (mmt) of aluminium in CY2017 (6.3 per cent of global production), out of which 80 per cent was exported out of Russia and the CIS countries.

Hence, the sanctions may result in Rusal having to cut back a large part of its annual aluminium production, which would further result in widening of the deficit of aluminium in the world, Icra said.

On the other hand, the global zinc market has turned into a deficit after remaining in surplus in the first few months of this calendar year. The copper market, which was also in a marginal surplus of 0.12 mmt in the first three months, has turned into a deficit, impacted by the closure of 0.4 mmt copper plant of Vedanta in Tuticorin. The resulting situation is likely to support international non-ferrous metal prices, notwithstanding temporary fluctuations typical of internationally traded commodities.

In the domestic market, the sharp depreciation of the rupee against the US dollar has provided an additional support to prices, as realisation in the Indian market is determined on an import parity basis.

The impact of the shutdown of Vedanta's copper complex has resulted in a shortage of the metal in the domestic market. As a result, local downstream copper product manufacturers were adversely impacted, during the first quarter of this financial year, due to a lack of adequate primary metal in the market.

"The situation is likely to improve in this quarter as import of refined copper has started increasing from July 2018", Roy added.