Improvement in macro sentiment leading to recovery in Aluminium, Copper prices: ICRA

Prices of aluminium and copper are showing signs of recovery in the last three months as trade tensions in international markets have eased to an extent leading to an improvement in sentiment, rating agency ICRA said in its research report.

Consequently, while aluminium prices at the spot market have increased by 4 per cent in the last three months, the improvement in copper prices in the same period have been stronger at 10 per cent. At the same time, zinc prices have fallen by 3 per cent due to a prevailing surplus of zinc in the global market, which has kept prices subdued, the agency said.

“The prevailing global supply demand scenario in both aluminium and copper has been conducive to a price recovery, given the deficits of these metals in the physical market.” said Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA. “But weak macroeconomic sentiments arising out of the trade tensions weighed on prices thus far.” added Roy.

Macro-economic uncertainties, as well as weaker sentiments due to the trade war, have led to a sharp slowdown in global consumption growth rates of aluminium and copper to around 0.1 per cent and 0.3 per cent, respectively, during 9m CY2019, from the approximately 4.0 per cent and 2.3 per cent growth rates registered in CY2018.

As per ICRA, despite muted consumption levels, the markets of these two non-ferrous metals continued to remain in deficit during this period, with shortages expanding on a YoY basis as production growth rates were even lower than the growth rates in demand. The slowdown in production growth of aluminium and copper was in turn a result of capacity constraints, which is unlikely to improve significantly in the near term as utilisation rates of operating capacities is already high.

On the other hand, in the last three months zinc prices have corrected by 3 per cent. During the current calendar year, global mine production of zinc has increased through a ramp up in production in newly operationalised mines in Australia and South Africa.

As per ICRA, domestic demand for non-ferrous metals in FY2020 has been impacted by the slowdown in the automobile and construction sectors. Consequently, consumption growths of aluminium, copper and zinc are likely to be muted at 2-4 per cent, which is lower than the 3-5 per cent growth rates expected earlier. Notwithstanding the muted demand growth, the impact of the shutdown of Vedanta’s copper complex has resulted in a shortage of copper in India.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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