Global Macroeconomic Uncertainties Weighing on Nonferrous Metal Prices: ICRA

Be it in India, in particular, or in the global market, macroeconomic uncertainties still prevail, thanks to the ongoing trade wars between Washington and China and various other country-specific factors. Little wonder therefore that these macroeconomic uncertainties are leaving their marks on the non-ferrous metals’ markets, among others. International prices of the three non-ferrous metals, that is, aluminium, copper and zinc have witnessed corrections of 13 percent, 7 percent and 16 percent respectively in the last one year as a result of these uncertainties.

Besides, the global consumption growths of these metals also registered a slowdown in CY2018 and, going forward, growth is expected to remain muted in the current calendar year as well. Despite muted consumption levels, the markets of the three key non-ferrous metals were in deficits in CY2018 and the shortage expanded on a Y-o-Y basis, as production growth was even lower than growth in demand, a recent study by ICRA pointed out.

What is even worrying is that there are no signs of improvement in the situation in the near future. The demand-supply fundamentals are apparently somewhat delinked from the current international price scenario. The slowdown in production growth was, in turn, a result of capacity constraints, which is unlikely to improve significantly in CY2019, the study felt.

“For the calendar year 2019, while deficits in the aluminium and zinc markets are likely to expand, the copper market is likely to be balanced. As a result of this, the risk of a further downside in base metal prices seems low, at least in the near term,” said Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA.

When it comes to the Indian market, in particular, the impact of the shutdown of Vedanta’s copper complex has resulted in a shortage of the metal in the domestic market. As a result, local downstream copper product manufacturers have been adversely impacted in FY2019, due to a lack of adequate primary metal in the market. “The situation remains uncertain as on date due to the lack of clarity on reopening of the plant”, said Roy.

In sharp contrast, there is an excess supply situation in domestic aluminium and zinc sectors and that is likely to persist as domestic capacities are higher than demand, and manufacturers are expected to operate the plants at high asset utilisation levels. This would eventually lead to large export volumes. Off-take risks in the international market, however, would remain low, given the expected deficits in the global market and the cost competitiveness of the domestic manufacturers, ICRA study said.

For the record, the copper market, which had been in a marginal surplus of nearly 0.12 million metric tonnes (MMT) in the first quarter of CY2018, returned to a large deficit in the next three quarters, impacted by the closure of 0.4 MMT copper plant of Vedanta in Tuticorin.