Hindalco Industries Ltd. (HNDL), India’s second-largest aluminum producer, is seeking to quadruple exports of the lightweight metal to exploit the rupee’s plunge to a record, said two people familiar with the strategy.
Billionaire Kumar Mangalam Birla’s company expects to increase overseas shipments to an unprecedented 130,000 metric tons in the year through March, the people said, asking not to be identified as they aren’t authorized to speak on the subject. Output may rise 34 percent to 725,000 tons in the period after the Mumbai-based company started a smelter in central India last quarter, they said.
The rupee’s 9.8 percent slide this fiscal year against the dollar is prompting Hindalco to accelerate capacity addition plans and benefit from rising demand for the metal used to make products from beverage cans to aircraft. Global consumption may rise 7 percent this year, led by China, according to Alcoa Inc. (AA), the world’s largest producer, with a $250 a ton spot premium over three-month London Metal Exchange contracts signaling demand exceeding supply.
“The rupee’s fall is prompting companies to seek buyers outside India,” Fitch Ratings Director Devendra Pant said in a phone interview from New Delhi. “The extent of benefit they can derive will depend on global demand for that product.”
Hindalco fell as much as 1.1 percent to 99.75 rupees and traded at 99.90 rupees as of 10:45 a.m. in Mumbai. The stock has declined 23 percent this year, compared with a 0.1 percent gain in the benchmark S&P BSE Sensex.
Hindalco spokeswoman Pragnya Ram didn’t respond to an e-mail seeking comment.
First-quarter profit may fall 19 percent to 3.46 billion rupees ($58 million) from a year earlier, according to the median of eight analyst estimates compiled by Bloomberg. That would be the lowest in three and a half years. Sales may drop to the lowest in a year.
Hindalco, which added 359,000 tons of smelting capacity at Mahan in Madhya Pradesh state, is ramping up output, while scouting for buyers in traditional markets including South Korea and Japan, Asia’s biggest aluminum importer. A $250 spot market premium suggests demand is strong and production will rise this fiscal year, Managing Director Debnarayan Bhattacharya had said on May 28, without giving details.
While contract prices of aluminum on the London Metal Exchange have dropped, the high spot premium indicates physical demand for the metal is surpassing supplies. That, combined with the weakening rupee is spurring overseas sales.
In 2009, Hindalco started a $5.5 billion capital expenditure plan to double smelting and refining capacities to 1.3 million tons and 3 million tons respectively. Hindalco, which is also building two power plants of 900 megawatts each in Madhya Pradesh and Odisha, may start production at a 359,000 ton plant in Odisha next quarter, Bhattacharya had then said.
Hindalco plans to raise about 50 billion rupees in loans and bonds to refinance high-cost debt taken to build the 1.5 million ton Odisha refinery. Group debt rose 37 percent to 563 billion rupees as of March 31, according to Bloomberg calculations.
The company, which also owns Novelis Inc., the world’s largest supplier of flat-rolled aluminum products to the automobile industry, increased production of high value products to 47 percent of total output in the last fiscal year from 43 percent in the year ago period. High-value product volumes will continue to rise primarily on the back of increased output of beverage cans, according to Bhattacharya.
Atlanta-based unit Novelis, which spent $775 million last fiscal year, is increasing its aluminum rolling capacity in Brazil and South Korea by 572,000 tons and building automotive finishing lines in China and the U.S.
The rupee will drop to 62 a dollar by the end of this year, according to Nomura Holdings Inc., the most accurate forecaster for the currency in the last four quarters, based on data compiled by Bloomberg. Second-ranked JPMorgan Chase & Co. shares that forecast, while third-ranked Canadian Imperial Bank of Commerce predicts 61.50.
New York-based Alcoa on July 8 reported earnings that beat analysts’ estimates following a better-than-expected performance at its unit that supplies components to aerospace and power companies. It’s boosting sales at downstream divisions as Chairman and Chief Executive Officer Klaus Kleinfeld tries to reduce reliance on aluminum smelting, which has been hurt by lower metal prices.
Aluminum for delivery in three months, the most active contract on the London Metal Exchange, has fallen 14 percent this year. It traded at $1,788.50 a ton as of 10:29 a.m. in Mumbai. The contract reached a four-year low of $1,765 a ton on June 27.
“Global demand for aluminum may rise 6 percent this fiscal year, driven mainly by higher demand for flat-rolled products from the automotive industry and specialty products,” said Abhisar Jain, an analyst at Centrum Broking Pvt. in Mumbai. “The drop in the rupee and almost no possibility of a sharp gain in local demand will also allow Hindalco to look at exports market.”
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