Operating margin of aluminium producers to decline 12 percentage points in 2022-23: Crisil
Oct 31, 2022
New Delhi [India], October 31 : The operating margin of Indian aluminium producers is expected to decline more than 1,200 basis points (12 percentage points) this financial year to 22-24 per cent -- from a decadal high of 36 per cent seen last fiscal -- owing to lower realizations and higher cost of production -- mainly power, said Crisil Ratings.
Domestic primary aluminium producers saw record earnings last year on the back of strong realisations -- prices reached a historical high amid post-Covid economic recovery, with the global aluminium market turning supply-deficit.
In the current fiscal, however, the operating margin, the rating agency said, is seen retreating closer to past levels, but would still remain higher than the average of 17 per cent over fiscal 2017-21.
Despite the moderation in the margin, operating profits may remain better than the past 5-year average, partly owing to strong domestic demand growth of 6-7 per cent on-year for aluminium products, mainly from the power and construction sectors, it said in a statement on Monday.
The two sectors comprise 70 per cent of the total sales volume.
For aluminium makers, profitability is a function of global and domestic factors that affect prices and costs.
London Metal Exchange (LME) prices for aluminium have fallen 40 per cent from its March 2022 peak to USD 2,300 per tonne currently.
Crisil Ratings said it was because of extended lockdown restrictions in China and growing recessionary pressures impacting global demand in the first half of calendar 2022. On the other hand, global supply remained robust driven by production increases in China amid relaxation of power restrictions. China has around 55 per cent capacity share in the global market.
"Prices in the second half of the fiscal are expected to remain range-bound around current levels, supported by low inventory levels at LME and recent production cuts in Europe which may partly offset the impact of higher Chinese production," said Ankit Hakhu, Director at CRISIL Ratings.
