Hindalco’s shine relies on aluminium prices
Hindalco Industries Ltd were not immune, rising by 4% and also touching a new 52-week high. Prior to this, the stock was up 3% in 2023 so far. But to keep investor sentiment intact, a significant uptick in demand for aluminium is necessary, which in turn would lift the metal’s prices.
The profitability of Hindalco’s India business hinges on how aluminium prices behave on the London Metal Exchange (LME). However, triggers for an upward trajectory appear limited, at least in the near term. LME aluminium prices have been range-bound at $2,100-2,300 per tonne in the last few months.
What’s more, Hindalco expects the metal’s price to be contained in this range ahead. In 2023 so far, global aluminium consumption has been flat year-on-year at 52.2 million tonnes as higher interest rates and inflation are keeping demand in check. “We estimate the aluminium market to remain in surplus in the medium term and forecast LME aluminum price at $2,250/2,350 per tonne for FY2024/25E," said analysts at Kotak Institutional Equities in a report on 12 November.
However, there is a small respite on the costs front for now. In the December quarter (Q3FY24), coal costs are likely to rise sequentially but other input costs are expected to drop. All in all, Hindalco expects the cost of production in Q3 to be at the same level sequentially.
In Q2, Hindalco’s aluminium Ebitda rose by almost 7% sequentially, helped by lower coal costs even as price realisations dropped. Thus, better volume holds key for better margins. On the other hand, Hindalco’s wholly owned overseas subsidiary, Novelis Inc., is on a better footing.
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