Aluminum prices have been very volatile lately and recently, due to the geopolitical issues facing the world. They have calmed down due to concerns about demand in China, but now what is the outlook for prices?
It is a competitive market where the price is determined by the process of demand and supply. In the fourth quarter of the last fiscal year or technically the first quarter of the current AC 2022, the gap between global production and consumption has narrowed. The production facility across the world is more or less on par with consumption or demand.
Some abnormal factors that create apprehension in the minds of the general public and traders in particular will be the impact of the Ukrainian war. What will be the impact if this continues, what will be the impact if demand increases and economies pick up. These apprehensions sometimes push demand a little more and this leads to price fluctuations.
But if the price rises above 2600-2700, the downstream industry cannot survive. If prices remain high, this may not be affordable for downstream aluminum industries.
This quarter’s performance was helped by high aluminum prices, but since then aluminum prices have declined by almost 30%. How could next quarter’s performance improve given lower aluminum prices?
During the next quarter, despite all the crises, we put our sincere efforts to maintain the highest level of production. For the first time in the company’s history, we produced 4,60,000 tons of metals last year. At present, the market price does not allow for regulation. We will produce the maximum and we are making alternative arrangements for the supply of coal. We can survive and sustain at this price and we are confident in production to utilize the full production capacity of 4,60,000 tonnes this year as well.
Your EBITDA margins have reached more than 37%. Has there been input cost pressure in the current quarter?
Everyone in the market faces inflation. Oil prices have risen. Coal prices have increased significantly and the price of fuel has also increased by more than 50%. Fuel oil, CP coke and CT pitch all depend on the fuel market. The fuel market is currently at its peak and we are optimistic that with this price we can sustain and although the cost of inputs has increased we do not see this as a barrier as the prevailing selling price or LME despite the cost increase in the cost also gives a certain margin.
Do you think margins at around 37% are sustainable?
The market is volatile and it is impossible to predict a stable percentage at the start of the year. We do it for seven months, eight months and nine months.
How do you see demand for the rest of the year?
Production capacity across the world and demand are almost at the same level, although production capacity is gradually increasing. The demand is also increasing. It differs from country to country but will increase as a whole if you see demand and productions more or less at par. Sometimes a tiny difference occurs and the demand exceeds or the production exceeds. This impact is very insignificant in a perfectly competitive market.
Nalco has been awarded two coal mines – Utkal D and E. We understand that mining will start from FY24. How will this help reduce production costs?
The cost of production that we will incur will be significantly lower than the market price at which we buy the coal on the market. Thanks to auctions, coal prices climb up to Rs 10,000-12,000 depending on the ability to absorb costs. However, this cannot be a long-term crisis. So, ignoring the long-term perspective, the cost of production we incur will be much lower than the price we pay to buy at
or subsidiary. I am confident that once production begins, the exact cost can be determined.