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Auto, construction sectors slowdown to drag non-ferrous metals demand

A forecast by ratings agency Icra notes that the consumption growths of aluminium, copper and zinc are slated to remain tepid in the range of 3-5 per cent

Jayajit Dash  |  Bhubaneswar 

Firms see cut in one-year price targets, analysts scale back expectations

Slowdown in automobile and sectors is likely to keep demand of non-ferrous metals in the country muted through the rest of this fiscal year.

A forecast by ratings agency Icra notes that the consumption growths of aluminium, copper and zinc are slated to remain tepid in the range of 3-5 per cent, weaker than the previous anticipation of 6-7 per cent.

Business headwinds and macro economic uncertainties driven by ongoing trade wars have throttled global consumption growth of aluminium and copper at 1.1 per cent and 0.5 per cent respectively during H1 of calendar 2019. For zinc, the consumption growth of 0.2 per cent was a turnaround from the degrowth it registered in 2018 though the overall demand largely flattened.

Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, Icra said: “Non-remunerative prices, coupled with supply side disruptions as well as capacity constraints have impacted non-ferrous metal production globally. As prevailing level of prices disincentivize new capacities coming online, the supply side pressures are likely to continue in the near term.”

International prices of the three non-ferrous metals- aluminium, copper and zinc are trading near their two-year lows for the last three to four months, primarily due to macroeconomic uncertainties on the back of ongoing trade wars and other country-specific factors. However, the fundamental supply-demand balance has kept prices range-bound. The deficits in the different base metals are likely to support prices, notwithstanding temporary fluctuations, typical of any internationally traded commodities.

Global aluminium reeled under a deficit of 0.07 to 1.01 million tonnes (mt) for the last nine quarter due to production cutbacks in China. In India, aluminium production showed an uptrend during the second half of calendar 2018 but scaled back between March and June 2019 owing to shutdown of some loss making capacities.

The copper and zinc have also remained in deficits in the last five quarters. The period of deficits in the international copper market coincides with the closure of 0.4 mt copper plant of Vedanta in Tuticorin, indicating the impact of the closure on global copper supply.

“Global copper deficit during April 2018 to March 2019 was 0.6 mt indicating that the Tuticorin smelter closure contributed around 66 per cent to the global copper deficit”, Mr Roy added.

The impact of the shutdown of Vedanta’s copper complex has resulted in a shortage of copper in India. The deficit in copper, which was at 39 per cent of consumption, is likely to expand to 43-45 per cent in FY2020. Consequently, India turned into a net importer of refined copper in FY2019 from being a net exporter till FY2018. The country, however, remains a net exporter of aluminium and zinc as domestic capacities are higher than demand, and manufacturers operate the plants at high asset utilisation levels.

First Published: Thu, October 03 2019. 18:01 IST