Aluminium prices are softening both in the international as well as domestic market

Date: 19-01-2019

Impact: Positive (automobile, construction, electronic goods and packaging), Negative (Aluminium Metal Recovery Facilities)


Aluminium prices are softening both in the international as well as domestic market. As on December 2018, price has dropped to an 18-month low of $1,920/mt (-7.7% YoY) in the international market. In the domestic market, the commodity is currently trading at a 9-month low of Rs. 1.56 lakhs/ mt. The downward trend in aluminium is primarily a result of mild demand especially from China. The global manufacturing hub has significant influence on price of the commodity as it consumes around 60% of the entire global aluminium production. Due to the ongoing uncertainty regarding the US-China trade tension, it is understood that industrial activities in China have been witnessing a slowdown. Therefore, price of the commodity has been facing downward pressure.

Since automobile, construction, electronic goods and packaging industries are the major consumers of aluminium, a drop in price will reduce input cost of these sectors. However, there is another side of the story as well that pertains to the supply side. It is noteworthy of mentioning that around 34% of the advances in the basic metal industry including aluminium are stressed assets. Therefore, a weaker price will further increase the stress assets in the industry.

As things stand, even though the slowdown in demand may reverse in the short to medium term, we do not see prices rallying anytime soon. This because of two things. First, there is tremendous supply glut in the system despite inventory cut downs and evident recoveries, albeit minor. Second, the Russian suppliers, who are currently offline due to sanctions may re-enter the market – a situation which will make the supply demand mismatch much more pronounced. India, with a consumption share of 2% in the refined market - is a somewhat marginal player and will therefore be greatly influenced by global prices; a fact that is for once in the country’s favour.

Our exciting journey started in 2005 with rating of bank borrowers most of whom were small and medium enterprises. At that time, credit rating was a concept known only to large issuers of capital market instruments. Since then, like a caterpillar transforms itself into a beautiful butterfly, we transformed to rate bonds, bank facilities of large corporates and issuers across industries. Along came many achievements - SEBI Registration in 2011, RBI accreditation in 2012, 50,000 ratings in 2018, 5,000 Bond and Bank Loan Ratings in 2017, launch of India's first Android and iPhone app to disseminate rating, tamper-proof QR-code-enabled rating rationales, and SMERA Terminal to name a few.

Now is the time to re-emphasize our increasing footprint across all segments of ratings through the launch of our new name - 'Acuité'.

The name has changed. The spirit of upholding highest standards of analytical rigour, continuous improvement, excellence in our processes and quest for innovation remains the same. We would like to re-emphasize that we will continue to work hard to provide independent, unbiased and timely opinion of highest standard.

Acuité means 'sharpness and clarity of thought and vision'. Let our research and ratings help you take decisions with confidence.

Sankar Chakraborti