Aluminium prices likely to come under pressure on excess supplies

Prices to average at $3,100 a tonne this year

Aluminium prices which surged to ₹300 per kg in March are expected to gradually decline in the second half of this fiscal and average to around ₹225-235 per kg for the whole fiscal.

Domestic prices are linked to three-month contracts on the London Metal Exchange, where the average price was $3,537 per tonne in March, up 8.5 per cent month-on-.month

Despite the decline, LME prices are expected to average at $3,100 per tonne this year, about 25 per cent higher than last year, said Crisil Research.

A day before the war broke, global aluminium prices were hovering around $3,220 per tonne on February 23.

Price have since retreated to $3,200 a tonne from an all-time high of $3,985 due to spike in China Covid cases. With demand coming to a standstill, it leads to inventory build-up and opening up export opportunities for Chinese traders.

Once the regional lockdown eases, excess inventory in China would hit the global markets and weigh down prices. But there is unlikely to be a sharp fall in prices because of robust demand.

The global aluminium market saw a deficit of 1.2 million tonne last year due to lower output from China and Europe amid energy crisis compared with a surplus of one million tonne in 2020.

Hetal Gandhi, Director, Crisil Research, said, firm aluminium prices will be supported by extended supply cuts and robust demand globally.

However, Gandhi said, the deficit to be relatively lower at one million tonne as Chinese output should improve in the second half.

Koustav Mazumdar, Associate Director, Crisil Research, said, exports by domestic primary aluminium producers are estimated at 2.4 tonnes in FY22, equivalent  to 61-64 per cent of domestic production. Even though marginally lower than 65 per cent in FY’21, it is still higher than the pre-Covid levels of 50-55 per cent. The record prices and buoyant exports have helped domestic smelters to scale up production to an all-time high last fiscal though the domestic demand remained sluggish, he said.