Non-ferrous metals may add to inflation woe
The issue of price rises in steel products has taken centrestage in recent times as govt, in bid to rein in inflation , has asked steel producers to hold prices.
By MV Ramsurya, ET Bureau |
MUMBAI: The issue of price rises in steel products has taken centrestage in recent times as the government, in a bid to rein in inflation , has asked steel producers to hold prices, a move that implies state interference in market dynamics. However, the attention on steel has also masked the relevance of the non-ferrous sector ��� aluminium, copper, zinc and lead ��� which also plays an equally important role in user industries such as consumer goods, utility and the transport sectors.
While aluminium is the most widely-used non-ferrous product with applications in cars, and consumer goods, its usage is steadily increasing in rail wagons and buses also, hitherto dominated by the steel industry. Copper on the other hand has been famous for its applications in wiring and in electricity, while zinc and lead has seen applications in galvanised steel and batteries, respectively.
But the steady rise in steel prices has seen user industries substitute steel by non-ferrous metals wherever possible to reduce the cost content, while in some industries, such as in cars and railways, aluminium is being used to reduce weight and hence, fuel consumption.
Non-ferrous metals account for about 2% to 3% of the total inflation basket. However, this is expected to rise, say industry experts, mainly due to the growing applications of aluminium and copper and also due to an expected rise in prices of these commodities.
Globally, non-ferrous metal prices have risen by more than 300% over the past four years, mainly due to falling supplies from mines as companies haven���t increased investment in new mining, smelting and processing capacities. Inadequate supplies from mines are not able to keep up demand from emerging markets such as India and other BRIC countries, say analysts.
According to recent media reports, global aluminium prices are expected to rise by additional 50% through 2009 due to reduction of output by China���s top aluminium producers. This is part of a Chinese government-controlled measure to reduce consumption of electricity as the country���s power supplies have fallen short.
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Electricity accounts for three-fourth of the total cost of aluminium. According to the China Nonferrous Metals Industry Association, the Aluminum Corp of China, the largest producer, and a host of other aluminium producers which account for about 70% of the total aluminium production of China, have agreed to reduce production by 400,000 tonnes. This would save 5.8 billion kilowatt-hours of electricity .The impact from China���s measures have already started with the monthly sales of aluminium on the London Metal Exchange rising by about 40%, with analysts predicting a further rise once China becomes a net importer of aluminium due to the reduction in output.
Although domestic availability of aluminium is not a problem - about 1 million tonnes is produced in India - the high prices and slow progress in the expansion projects of Sterlite Industries and Hindalco Industries, could bring little comfort to prices. Indian aluminium prices are based to the LME.
In copper, the local situation is no different either. Hindalco Industries recently said that a scoping study at one of its mines in Australia has concluded that the mine is commercially unviable. Although the Aditya Birla group has another large copper mine at Nifty in Australia, the scoping study can dampen sentiment.
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A recent Barclays Capital Research report has said that the global copper cathode market would remain tight because of a severe shortage in concentrates ��� the main raw material for making copper. Current global inventories account for less than three weeks worth of world consumption, the report added. The bleak outlook on the concentrate front has also prompted the government to mull revival of a closed mine of the state-run Hindustan Copper, in Rajasthan. Although the issue is still being discussed, senior company officials have said that the government has been seriously considering the mine revival as it feels that metal prices are fast becoming a vital part of inflation.
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The Barclays Report also says that global copper mine production will grow by only 350,000 tonnes this year, while consumption will grow by nearly 750,000 metric tons due to demand from Latin America, the Middle East, China and other parts of Asia. Start a SIP with as low as ₹500 with ET Money App!
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