Indian aluminium producers are expected to benefit from high global prices as most of their inputs are domestically sourced even as low coal supply to non-power sector by Coal India remains a concern.
Global aluminium prices increased 18 per cent from January-end fuelled by rising geo-political risks amid the ongoing Russia-Ukraine war. Further, aluminium prices have touched an all-time high of $3,875 a tonne in the first week of March and currently trading at $3,320 a tonne, indicating tightness in the global supply.
Aluminium prices are expected to remain at the elevated levels due to low inventory worldwide and if any sanction on Russian aluminium exports will squeeze out the supply further. Russia contributes almost 12 per cent to global trade in aluminium with exports primarily diverted to Europe.
Rising energy costs
Further the sharp rise in energy cost in European countries will push up aluminium prices. The energy exchange rates have increased by almost three times in Europe since September 2021 and resulted in significant smelting cost pressures.
At the current tariff, cost of power to produce a tonne of aluminium is higher than the current LME spot aluminium prices. Consequently, almost 0.7 mtpa of capacity (15 per cent of installed capacity in Europe) has already been shut down since December 2021. Any restriction on gas supply from Russia to Europe could aggravate energy crisis.
Given the elevated power costs, aluminium production in Europe will remain severely impacted, which is also reflected in month-on-month decline in aluminium production. Further, disruption in alumina supplies from Ukraine, faced by the leading Russian producer Rusal and reduction of 2 million tonne of aluminium capacity by China last year are expected to keep aluminium prices higher in the near term.
Jayanta Roy, Senior Vice-President, ICRA said domestic primary aluminium producers are better placed as their energy requirements are met primarily through coal-based captive power plants and over two-thirds of their coal requirement is met through captive mines and linkage coal from Coal India.