 "steel, aluminium")
Aluminium prices have seen a bull run recently, rising to over $2,700 per tonne from the tariff-shock low of $2,275 per tonne in April’ 25. The surge is supported by the rate cut from the US Federal Reserve.
The metal also has a tight supply-demand ratio. Incidentally, aluminium prices are moving up, while alumina is trending lower. A weaker Dollar Index, geopolitical tensions, and easing financial conditions could all add momentum to the bull-run in the metal.
Globally, primary aluminium has tight capacity utilisation at 98 per cent. China has set a cap of 45 million tonnes per annum (mtpa) on aluminium production which constrains supply. This may lead to additions of recycling capacities, and there’s tightness in the scrap market.
The EU is considering suggestions that export controls should be imposed on aluminium scrap with a duty of up to 30 per cent. The tight supply-demand may not ease in the medium-term. Although there would be an incentive to create more capacity if prices trend over $3,000 per tonne for an extended period, it would take long gestation and large capex to build new capacity.
Ongoing tensions in the Middle East may disrupt supply chains. London Metal Exchange (LME) inventory levels are relatively low, as EU and UK are ramping up defence outlays, which will push demand. Chinese net aluminium exports are down 5.3 per cent M-o-M and fell 45 per cent Y-o-Y. Meanwhile, US premiums have surged to $1,550 per tonne due to tariffs.
Novelis could be negatively impacted by more than $60 million in 2QFY26 as it imports scrap from Canada and Mexico (assuming there are no relevant trade deals with Canada or Mexico). Global aluminium production in July stood at 6.4 million tonnes, up 2.5 per cent Y-o-Y and 3.2 per cent M-o-M. The scrap spreads have risen in the US, which may benefit Novelis.
The government of Guinea recently revoked concessions given to Guinea Alumina Corporation (which accounts for 2-3 per cent of global bauxite supply), China’s 45 mtpa aluminium production cap, and a potential shutdown in a Mozambique smelter could impact supply.
In the domestic market, GST reforms have cut rates on aluminium and copper household items, which may stimulate demand. Hindalco Industries derives about half its operating profits from aluminium, while Vedanta derives close to 80 per cent of its operating profit from a combination of aluminium, zinc and silver. The spread expansion created by rising aluminium and falling alumina prices may favour Vedanta, since it sources alumina externally.
Nalco derives 60 per cent of its operating profit from aluminium and 40 per cent from alumina. While Hindalco has seen a strong run up, NALCO may present a better valuation play. Volumes should increase from FY27 due to expansion plans. Backward integration gives NALCO a cost edge, and the balance sheet is debt-free.
The commissioning of a 1.0 mtpa facility at Damanjodi alumina refinery by FY26-end will lead to a ramp up in capacity across FY27 and FY28. Smelting capacity is not being expanded (it stays at 460 ktpa), so the entire incremental output is available for external sales and may translate into a 25 per cent annual growth in alumina sales volumes over the FY25–28 period.
NALCO has access to its own captive coal and bauxite, which drives margins up. Bauxite leases at Panchpatmali blocks (expiring in 2029 and 2032) will require timely renewal, but the integrated supply chain ensures earnings stability.
The balance sheet is net-cash, with good free cash flows. A smelter expansion is proposed in FY30, costing about ₹17,000 crore. Until then, annual capex guidance of ₹1,700-2,000 crore should be easily met through internal accrual. Revenue, operating and net profit could all grow at double digits Y-o-Y till FY28.
