Sales of non-ferrous metal companies contracted by 4.7 per cent in Q2 of this fiscal on account of overall weakness in metal prices.
Among the non-ferrous metal companies, aluminium firms witnessed 21 per cent contraction in sales. A study by CARE Ratings noted that the average prices of aluminium in Q2 of FY20 declined by 14 per cent compared to the year ago period. Aside from aluminium, average prices of other base metals such as zinc and copper fell by 7.5 per cent and five per cent respectively, negatively affecting the topline of companies.
For metals sector, the contraction in net sales was broad based having repercussions across all segments. The sales of the overall metal sector plunged by 13 per cent in Q2 of FY20 as against 18.8 per cent growth registered in the corresponding period of last fiscal year.
Besides price contraction, aluminium producers had to grapple with slowing demand.
On a year-to-date basis, the domestic demand grew marginally by 0.1 per cent at the end of September. Firm demand in aluminium consumption has been one of the bright spots for the domestic producers, helping them to combat headwinds like tepid LME (London Metal Exchange) prices. Aluminium prices on LME have slumped 14 per cent to $1762 per tonne at the end of September 2019 compared to a year-ago period.
Of late, Indian aluminium demand is aligning with global demand where growth is expected to fall 0.4 per cent in calendar 2019, the lowest since the global financial crisis of 2008. International aluminium markets are projected to witness a deficit of 1.2 million tonnes (mt) in calendar 2019, 0.1 mt shy of 1.3 mt recorded in calendar 2018.
“The waning demand is vexing for the domestic aluminium makers. Degrowth has also been noticed in case of Flat Rolled Products (FRP) because of subdued demand in transportation and construction sectors. Slowdown in manufacturing sector, fragile consumer demand and subdued investment activities has dragged aluminium consumption”, said an industry source.
Likewise, the moderation in zinc prices impacted key producers like Vedanta Group controlled Hindustan Zinc Ltd (HZL). The company's earnings before interest, taxes, depreciation and amortization (Ebitda) in Q2 was down eight per cent in Q2 to Rs 2120 crore on weak demand and muted zinc prices. HZL's revenue from operations during Q2 was down six per cent year-on-year at Rs 4511 crore led by an average six per cent decline in prices on the benchmark LME and lower lead and silver volumes.