Aluminum may continue to shine in the short term

not without reason. is at risk of aluminum Exports from Russia-Ukraine. Analysts at Kotak Institutional Equities said in a March 10 report that Russia is the second largest producer of aluminum in the world, second only to China. So sanctions on Russia are a matter of concern. The sanctions have adversely affected business in several ways, including delays in payment mechanisms as major Russian banks cut-off from the SWIFT payment system. “Furthermore, global shipping liners’ refusal to carry Russian cargo will disrupt these commodities. We believe aluminum, copper, nickel, thermal coal, coking coal and steel prices will trade higher in the near to medium term. But will remain.”

Also driving up aluminum prices is that production of the metal is energy intensive and the ongoing conflict has resulted in energy prices rising.

Against this backdrop, Kotak analysts see a downside risk in both demand and production in the current scenario. “Supply risk from Russia, Ukraine and Europe, with approximately 18% of global supply and demand risk arising from modest demand destruction due to higher prices. However, we anticipate a higher impact on supply versus demand resulting from our demand- The balance of supply leads to high market deficit” the Kotak report added.

In such a situation, the demand for aluminum has increased worldwide in recent times. Analysts at Motilal Oswal say this demand is driven by the replacement demand for plastics and bottles in packaging, especially in North and South America where demand for beverage cans is strong. In addition, there is an increasing demand for high-end passenger vehicles and commercial vehicles in the Western world, where automotive bodies are made of aluminum. With the increasing share of electric vehicles, the demand for aluminum will also increase as battery casings are made from this metal.

So, what does this mean for Indian producers? Due to their negligible dependence on imported coal, they are in a comparatively better position than global producers. But rising oil prices mean increasing costs. “The higher aluminum price is partially offset by the higher cost in our (earnings) revision. Our Earnings before Interest, Taxes, Depreciation and Amortization (Ebitda) for FY2022E/23/24E is 1%/8%/9% for Hindalco Industries Limited and 5%/25%/9% for National Aluminum Company Limited (NACL) Increases by 12%. ,” Kotak analysts said.

Unsurprisingly, Hindalco and NACL shares have gained over 20% so far in CY22 on the NSE. These companies are expected to benefit from higher aluminum prices.

Shares of both the companies have touched 52-week high on NSE this month.