Prices of non-ferrous metals likely to remain range bound: ICRA

Says movement of the Indian currency against the US dollar will also have a critical impact on domestic prices going forward

Prices of non-ferrous metals are likely to remain range-bound in the near term despite an improvement in demand conditions, rating agency ICRA today said.

While aluminium, zinc and copper prices have exhibited different trends in the current year so far, an uneven and mixed outlook for the major economies in the world is likely to keep base metal prices under check going forward, it said in a statement.

"While both aluminium and zinc prices have seen an improvement in the current calendar year, copper prices have largely remained lower than the levels witnessed last year," Senior Vice-President and Co-Head, Corporate Sector Ratings, ICRA, Jayanta Roy said.

Base metal prices in India are influenced by import parity prices of these metals, it said adding therefore, in addition to global prices, the movement of the Indian currency against the US dollar would also have a critical impact on domestic prices going forward.

"A growth of almost 5% in global aluminium consumption during the period January to June 2014 and almost stagnating production levels, following curtailments of production capacities during the second half of the previous calendar year, have turned the global aluminium demand-supply position into a deficit now, resulting in a slow drawing down of inventory levels," the statement said.

Price of aluminium traded in the LME has shown an upward trajectory, beginning in the month of June 2014, after remaining under considerable downward pressure in the preceding months.

Additionally, overall realisation continues to derive support from high regional premiums on delivery of aluminium in the physical market.

"In ICRA's opinion, a significant part of the industry capacity would still not be in a position to recover costs despite such increase in LME prices and, therefore, an additional production capacity of around 1 million tonne (MT) is proposed to be curtailed globally during H2CY2014," the rating agency said.

While this may lead to a further tightening of the demand-supply position, ICRA believes that any significant liquidation of the accumulated large stock, driven by regulatory actions, may limit the scope of further improvements in realisations/premium in the near term, it added.

On Zinc prices it said "growth in zinc consumption is likely to slow down in the near term, owing to an expected moderation in demand for steel globally, which is the largest zinc consuming sector.