Hindalco's rough patch to continue on dark global outlook

The September quarter performance of Hindalco Industries was negatively impacted by a combination of internal and external factors, the most crucial being lower prices on the London Metal Exchange (LME), power shortages and supply chain disturbances. As a result, its net profit was 29% lower than the year-ago period at Rs 358.9 crore, while total income fell 2% to Rs 6,163.5 crore.

The 20% year-on-year drop in LME aluminium prices, which came under pressure due to less-than-expected demand from China, was chiefly responsible for the company's lower sales earnings. Though premiums were high, it was not enough to mitigate the fall in LME prices. Premium is the extra cost aluminium producers charge over and above the LME price.

Power shortages not only lowered production but also increased the cost of the metal produced. This, in addition to the rise in the cost of inputs like coal, caustic soda and oil, lead to a 60% fall in operating profit in the aluminium business to Rs 169.8 crore.

Internal factors like power shortage and supply chain disturbances might be regarded as one-off occurrences, but the overall outlook for the global aluminium industry is not very encouraging.

At its earnings call last month, Alcoa, the world's third largest aluminium producer, lowered its prediction of global aluminium demand growth to 6% for 2012 due to the slowing demand from China.