Market and product
See aluminium prices moving back to $2,000/tn: Nalco
Indian commodity producers are set to gain the most as the cost of production for Chinese producers will go up due to the rupee appreciation. But the cost for Indian producers will remain the same, thus increased margins and higher profits.
Commenting on the same, BL Bagra, Director-Finance, Nalco, said markets will not over-react to the Chinese move. He doesn’t see a major impact on aluminium prices in the near-term. "Metal prices are largely guided by high inventory. We see a marginal rise in prices and that too in a gradual manner."
Currently, aluminium prices are trading at USD 1,960 per tonne. Bagra sees aluminium prices moving back to USD 2,000 per tonne. "The expected range for aluminium prices over the next 3-6 months is USD 2,000-2,200 per tonne."
Nalco, he stated, is targeting global acquisitions in the Far East region.
Below is a verbatim transcript of the interview. Also watch the video.
Q: Could you explain or quantify to us whether there will be some kind of change in terms of prices themselves because of what China chose to do with their currency?
A: There is lot of discussion going on as to the impact of these changes that China has announced or announced intention to bring some kind of flexibility in the yuan exchange rates. But the markets, we believe, will not be overreacting to this kind of announcement because the proof of pudding lies in its eating. This is an announcement of its intention. We will watch carefully whether they do it in a gradual manner or let the currency float free to find it natural exchange rate.
Immediately, in the near-term, we do not believe that there will be any major impact on the prices because China itself is a major consumer of the aluminium metal as far as metal is concerned and other metals, despite the fact that they are the largest producers of these metals as well.
But we will watch very carefully as to what happens on the ground. Nevertheless there is optimism that these changes in decision and the future path should appreciate yuan releasing some pressure on the prices of some of the commodities which China has been inducting to its export in the global market.
Q: The expectations seems to be that the cost of production will now go up in China and that inevitably will lead to global aluminium prices firming up. Do you think it logically follows or is that too difficult takeaway to make?
A: If the yuan really appreciates in due course then it seems China is dependent upon import of bauxite as far as aluminium production is concerned to a large extent and if the bauxite becomes more expensive due to appreciating yuan the cost of production should increase definitely but that makes its own domestic consumption more expensive then its exports should be lesser competitive and that releases some pressure from the prices.
But metal prices are largely been guided by the heavy inventory which the London Metal Exchanges (LME) and other metal exchange stocks are carrying which is in excess of almost 5 million tonne in case of LME and another million in shanghai and New York metal exchanges. So that heavy inventory even though largely it is believed that they are blocked in a financial deals but still the prices when they reach to USD 2400 levels and under the pressure of stocks and coupled with European liquidity crises the prices tumbled down as much as by USD 500 within two months.
We feel that increase in the cost of production of the Chinese metal should influence the prices little bit in a very marginal manner that too in a gradual as far as timing is concerned but not in a big way and that too in a short-term.
Q: Where are aluminium prices globally now and do you see them climbing and staying above USD 2,000 in the foreseeable future, next two-three months?
A: Presently the prices have already reached almost USD 2,000 and this week they have been around USD 1,960-1,980 and from the low levels of around USD 1,900 last week they are coming back because we believe that the drop in last two weeks was more a sentimental reaction to the liquidity crises in some European countries and lesser to the fundamental regions to a particular commodity and we believe that in the short-term the prices will be above USD 2000 and they may stay in three-six months between the range of USD 2000-2200.
Q: One unrelated question, there are comments today from the mining minster saying that there is no plan for any government’s stake sale in Nalco. Nalco will not be looking to do any sale of any kind whether via the government or on its own to raise cash for capex?
A: We have been telling that we have roughly Rs 4,000 crore of cash in hand which will be enough to fund our capex requirement for another two financial years therefore till 2013 we do not have any need to raise any additional cash resources for our own capex. After that also since we are totally debt free company first we will like to achieve some kind of gearing and then the requirement of capex after 2013 first we will do through debt and after a year or so we will reach the market for additional equity for our own capex.
As far as government’s stake is concerned, it is for the government to decide and government has already announced many times that as far as current fiscal is concerned government doesn’t intent to offload from its own stake in Nalco.
(Source: www.moneycontrol.com)
