How Nalco Stands To Gain As Alumina And Aluminium Prices Spike
Spike in aluminium prices must be higher than the increase in alumina prices for Nalco to better operating margins.
National Aluminium Company Ltd. expects prices of aluminium and alumina to be around $2,550 per tonne and $600 per tonne respectively in the current quarter, its Chairman and Managing Director TK Chand said. That would help the company more than double its operating margin.
“Every $10 and change in alumina and every $20 change in aluminium boosts Nalco's operating income by Rs 85 crore and Rs 55 crore respectively,” Chand told BloombergQuint in an interview.
If there is a strong spike in alumina prices, the cost of production of aluminium increases, he explained. Therefore, the increase in prices of aluminium must be higher than the rise in the price of alumina for better operating margins, Chand added.
The state-run company – an integrated player that makes raw materials to final products – is sensitive to changes in prices of aluminium and alumina. That’s because of two reasons:
- Nalco sells almost its entire alumina volume at spot or index prices against the earlier practice of bench-marking it to a certain percentage of the aluminium rates on the London Metal Exchange.
- Higher prices of aluminium will help it turn around its loss-making aluminium business.
Watch the full interview here.