Explained: Why Vedanta Aluminium, Hindalco, Nalco shares tumbled up to 7% on Friday

Shares of Vedanta Aluminium, Aditya Birla-backed Hindalco and National Aluminium Company (NALCO) fell as much as 7% to their day’s lows on Friday after aluminium prices retreated from a seven-week high. Norwegian aluminium major Norsk Hydro ramped up production at its Brazilian refinery, Alunorte, following approval from Brazil’s oil, natural gas and biofuels regulator ANP to become a self-importer of gas.

Vedanta Aluminium shares fell 2% to a day’s low of Rs 442 on the BSE, while Hindalco declined 2.3% to Rs 1,022. State-owned NALCO was the worst hit, falling 7% to Rs 375 apiece. On the London Metal Exchange, benchmark aluminium fell 1.6% to settle at $3,285.50 a tonne.

Alunorte has reached a temporary agreement with gas supplier CELBA for terminal access, allowing the refinery to begin ramping up alumina production. Production is now being increased towards full capacity. The lost production during the period of reduced output is estimated at 100,000 to 120,000 tonnes.


The development comes just days after Alunorte had cut alumina production to 50% of its capacity on August 12 due to a gas shortage. The production cut had pushed shares of NALCO, Hindalco and Vedanta Aluminium up by as much as 8% during that trading session.

The market has also seen a sharp reversal following an unexpected supply update from the Middle East. Emirates Global Aluminium PJSC announced plans to restore production at its main smelter to pre-war levels by the first quarter of next year. The facility had been shut down following an Iranian strike in March. Expectations of an earlier-than-expected restart eased concerns over a growing aluminium shortage and triggered a sharp pullback in prices.

The development is negative for the three companies as Alunorte produces alumina, the key raw material used to make primary aluminium. A ramp-up in production could add more alumina supply to the global market, potentially putting downward pressure on alumina prices.

Aluminium outlook

HDFC Securities in a report said Aluminium is increasingly showing signs of entering a powerful structural bull cycle of its own. Aluminium prices on the LME have climbed steadily since the war began in late February, with supplies from the region disrupted due to the effective blockade of the Strait of Hormuz.

Morgan Stanley said the medium-term demand-supply outlook for aluminium remains constructive, supported by strong sustainability-linked demand and constrained supply growth due to China’s smelter caps and slower capacity expansion elsewhere.

The brokerage added that near-term factors such as China’s supply discipline, disruptions in the Middle East and elevated energy costs are likely to keep prices firm. It also pointed to favourable positioning on the global cost curve and low inventories outside the US as factors that could limit downside risks.

Analysts also believe India is entering a multi-year growth cycle that is expected to drive robust demand for both aluminium and copper.

Morgan Stanley described aluminium as its preferred base metal, citing a tighter demand-supply balance. Supply growth remains constrained by China’s capacity caps, slower ramp-up in Indonesia due to power limitations and limited expansion elsewhere. Recent disruptions in the Middle East have tightened markets further, with some supply losses likely to persist because of long restart timelines.

“LME inventories remain near historical lows, reflecting tight physical markets and limited buffer against shocks,” the brokerage said. With constrained supply flexibility due to China’s capacity cap and slower ex-China additions, low inventories increase the risk of sharp price spikes during periods of stronger demand or fresh supply disruptions.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)