As for global output of non-ferrous metals, while aluminium production witnessed a de-growth as a result of the regulatory steps taken in China to control production from “illegal” and polluting sources, copper and zinc outputs suffered from issues in mine production and degradation in quality of ore.
Commenting on the situation, Mr. Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA said: “The end of the restrictions on production in China during the winter months, would temporarily improve supply of aluminium in the global market. On the other hand, higher production from copper and zinc mines would result in balanced copper and zinc markets globally in the coming months.”
The improvement in aluminium supply is, however, likely to be temporary, as the restriction of aluminium production in China is likely to be implemented during the next winter months as well. Hence, overall production from the existing aluminium capacities in China in calendar year 2018 would remain largely at a level as in CY2017, even as consumption in the country is likely to expand by 8-9% on the back of healthy demand from the country’s automobile and construction sectors. ICRA expects ~3.5 MMT of new aluminium smelters to get commissioned mostly in China in this calendar year. Notwithstanding the incremental production from these capacities, the global aluminium deficit is likely to widen to 2.5 MMT in calendar year 2018 from 1.4 MMT in calendar 2017 because of an expected healthy rate of growth in consumption.
Regarding the domestic demand-supply scenario, consumption of the three key non-ferrous metals – aluminium, copper and zinc, registered 7-10% growths in nine months of FY2018. Despite the healthy growth rates, domestic non ferrous metal production remains in excess of consumption. The excess supply situation in aluminium and zinc is likely to persist going forward as well, as domestic capacity is high and manufacturers are expected to operate the plants at a high asset utilisation level. This in turn would lead to large export volumes.
Off-take risks in the international market, however, would remain low, given the deficits in the global market and the cost competitiveness of the domestic manufacturers. A high proportion of export sales, however, would have an impact on margins, as typically export realisations are lower compared to domestic prices because of duty protections available on domestic sales. However, if domestic demand for copper grows at the current rate of 7-8%, the market is likely to turn into a deficit in the next couple of years. The scope of increasing copper production in India is limited as the refiners are already running their plants at high capacity utilization levels. Hence, with demand increasing at a healthy rate, India may turn into a net importer of copper by FY2020 if no new plant is commissioned in this period.