China’s Cleaning Act Is Helping Indian Aluminium Producers

As the driver of commodity prices across geographies, China’s efforts to streamline processes at its bloated aluminium industry is helping metal companies back home and elsewhere.

Hindalco Industries Ltd. has climbed 44 percent on the S&P BSE Metal Index. The gain for Vedanta Ltd. has been 33 percent, while state-run National Aluminium Company Ltd. has had a muted growth of nearly 4 percent. Aluminium accounts for nearly half the revenue of Hindalco and NALCO, and a little less than one-third of Vedanta.

This correlation, he said, is the reason for Hindalco's stock performance. Global deficit and greater demand from China has certainly been helpful in the movement of commodity prices, said Damani.

Also Read: Hindalco Banks On Rising Aluminium Prices To Cut Debt

Being the biggest consumer of commodities, any attempts to rationalise production in China will have an effect on prices at global levels. “Not only are they closing down inefficient capacities, they are also out of sufficient processing facility,” said David Lennox, Resource Analyst, Fat Prophets.

This deficit in supply is keeping aluminium prices in China nudged towards demand. “Therefore, the commodity's price is rising driven by higher demand from China.”

Lennox said China has been the biggest player in the market for the past five years, influencing the global market and prices. China's story has broken the nexus between global growth and rising commodity prices as the latter has become more China-centric, he said.

Another factor that is moving commodity prices is the position of the U.S. dollar, said Lennox. The greenback currency has been weak this year although he expects the dollar to stay where it is. “In the near term, direction of U.S. dollar will be opposite to that of commodity prices.”