Volatility confounds non-ferrous sector

KOLKATA: One swallow is making a summer for Indian non ferrous metal industry.

By increasing prices of aluminium, Indian primary metal producers are trying hard to offset lower realisations from crashing alumina prices.

Lending a helping hand are hedge funds which continue to remain heavily invested in commodities that has hardened metal prices at the London Metal Exchange (LME), even without any dramatic changes in fundamentals such as consumption, production or stocks in pipeline.

Volatility and confusion continue in the global non-ferrous metals market with a section of traders steadfastly believing that China will continue to play the bull.

Others point to the estimated $70-90 billion worth of hedge fund positions that remain in metals but most are unsure which way things will turn if oil prices continue to move southwards. Hence few are venturing to forecast a turnaround. At least not yet.

National Aluminium Company Ltd (Nalco) was scheduled to revised prices on Tuesday and its pricing committee meeting continued till late in the evening and company spokesperson could not be contacted.

However, company officials said that a price increase ranging between Rs 4,500-Rs 5,000 per tonne could be effected in view of higher September monthly average price at the LME.

On September 29, Hindalco raised prices of primary metal by Rs 6,000 per tonne, while Hindustan Zinc Ltd hiked price by Rs 2,000 per tonne.

Domestic copper prices are unchanged, as global prices lose steam.

The metal price increased need to be viewed against the backdrop of crash in alumina prices which has moved down from levels of $680 per tonne in June-July to $280 per tonne at present.

Companies are now changing tack to protect their bottomlines by improving realisations from metals to compensate low price from alumina.

“Of course our export realisations in current year will not be the same as in 2005-06. We hope to partially offset lower price in the spot markets through our long term contracts which are higher than current spot prices. Also we will convert more alumina into metal in the remaining months of current year,” said a senior marketing official in Nalco.

“In not too distant future, we may be looking back to these last two years as those great old days. Hedge funds cannot be expected to keep sustaining the metals market. Not if oil continues to move downwards,” the official said.

In the first quarter of 2006-07, Nalco exported 1.79 lakh tonne out of total production of 3.58 lakh tonne at a time when prices averaged above $600.

Nalco has already decided to cut down production of alumina and its export target of 8.65 lakh tonne in 2006-07 is also likely to be given the miss. Instead, the company plans to maximise production of metal.

But according to analysts, prices of latter will be governed by movement of hedge funds because global supplies are stable and stocks at six weeks consumption at comfortable levels.

In contrast, that vindicates the impact of hedge funds, copper stocks which are as low as one week’s consumption, prices have move down from levels of $7,595 per tonne in September to $7,440 per tonne in October.

On Tuesday, composite price of all metal traded at LME was down 0.4% with copper weakening 0.3%. Mirroring this, stock prices of BHP Billiton moved down 0.7% and that of Rio Tinto 0.6%.