National Aluminium Co., India’s third-largest producer, is delaying the restart of the shuttered 10 percent of its capacity on signs the economy is stalling in China, the biggest user of the light metal.
Aluminum prices on the London Metal Exchange are being dragged down by the uncertain outlook for Chinese growth, Chairman B.L. Bagra said in a telephone interview. The recent price rally, driven by global output shutdowns, couldn’t hold above $2,300 a metric ton, the lowest level required for National Aluminium to operate at full capacity, he said.
China last week reported its biggest trade deficit in at least 22 years as government data also showed the world’s second-largest economy had the weakest January-February factory-production gain since 2009. Aluminum in London, which has dropped 19 percent since May, fell from a six-month high of $2,353 a ton on March 1 to close yesterday at $2,258.50.
“China is the biggest consumer of most commodities and any change in growth forecast of the country will have a bearing worldwide,” said Bikash Bhalotia, a metals and mining analyst at PINC Research in Mumbai. He has a sell recommendation on the stock. “If companies have their own coal sources it may be profitable to produce more metal even at current LME prices, but National Aluminium doesn’t have that luxury.”
National Aluminium cut output by 10 percent following a coal shortage at its unit in the eastern state of Odisha, Bagra said Oct. 18. The company expected a restart to the shuttered capacity in two weeks, he said then.
Coal Inventory ‘Comfortable’
The shares rose as much as 2 percent to 62 rupees in Mumbai, and were trading at 61.25 rupees as of 9.26 a.m. local time. The benchmark BSE India Sensitive Index climbed 1 percent.
“From January we started building our coal inventory and are very comfortable at present,” Bagra said yesterday from the eastern Indian city of Bhubaneswar, where the company is based. “Operating the closed capacity with power produced from imported coal is not a viable option at current metal prices.”
The company needs 7.5 million tons of coal annually, of which about 6 million tons is supplied by Coal India Ltd. under a long-term contract. The rest is imported or sourced from auctions.
National Aluminium may produce 410,000 tons of the metal, used in making aircrafts to beverage cans, in the year ending March 31, about 8 percent lower than the last fiscal year, Bagra said. Production costs had jumped 19 percent in the past two years as raw-material costs rose, he said.