Non-ferrous metal firms to post good business returns: ICRA

Business returns of domestic non- ferrous metal players are likely to improve in FY18 due to better realisation on metal sales and input costs remaining under check, rating agency ICRA said today.
Domestic non-ferrous metal players would register improved business returns in FY18 compared to FY17 as realisations on metal sales are now buoyant and expected to hold steady around the existing levels during the rest of the current fiscal, ICRA said in report here.
Earlier, the prices had strengthened in last fiscal, particularly in the last five months of FY17, and fluctuated within a narrow band around the peak levels in Q1 FY18.

Consequently, on a quarterly basis, primary metal manufacturers had progressively registered an improvement in their operating margins, with Q4 FY17 being the most favourable since the crash in international metal prices in FY2016, the rating outfit said.
"With input costs largely remaining under check, we can expect entities to register similar profitability in FY18 as witnessed in Q4 of the previous financial year, provided currency rates remain supportive," said ICRA Corporate Sector Ratings Senior Vice-President and Group Head Jayanta Roy .
On the demand-supply front, consumption trend of the three key non-ferrous metals - aluminium, copper and zinc - registered a wide variability in FY17, with aluminium consumption growing by a healthy 7 per cent, zinc by a marginal 0.6 per cent and copper witnessing a de-growth of 6 per cent, the report said.

During Q4 FY17, however, consumption growth was negative for all the three metals as per ICRA estimates. As this coincided with a period when domestic production in all the three metals grew at a steady rate, there was a large domestic surplus, which was mostly exported.

Going forward, while consumption is expected to improve in the current financial year, surplus availability will persist, as domestic capacity is high and manufacturers are expected to operate the plants at a high asset utilisation level. This would lead to buoyant export volumes.
Increasing exports, however, would have an impact on margins, as typically export realisations are at a discount compared to domestic remunerations, which enjoy some duty protection, the report said.

Additionally, the domestic metal exports are largely in their ingot form, which have a lower margin as compared to value-added products that are sold in the domestic market, ICRA said.
The ratings agency said that globally the demand for aluminium and zinc in CY17 is expected to overshoot supply. For copper, demand - supply is expected to remain in balance.