1-4 September, 2006 Pragati Maidan, New Delhi, India
    Aluminum Sector Magnifies Global Metal Melt Down.
Metal equities seen giving exaggerated response to commodity pricing weakness





Contrary to global trends where metals and mining equities have been more rational than underlying commodities, metals equities in India have seen an exaggerated response to commodity pricing weakness. Since the metal meltdown began on May 10 globally, Hindalco has declined much more than London Metal Exchange (LME) aluminium price. The stock price of company plummeted 33% from its high of Rs 243.20 on May 11 to close at Rs 163.15 a day ago
On the other hand aluminium price on the LME dropped 26% from a high of $2,433 per tonne on Tuesday from Rs 3,275 on May 10.

Similarly, NALCO stock has declined far more than corresponding aluminium price. The stock price of the public sector major fell 31% from its high of Rs 325.05 to close at Rs 224.50 on Wednesday. NALCO has also been impacted on account of worries over spot alumina prices, which have come off to $537/tonne levels after seeing peaks of $600-$620/tonne.

Hindalco has also been impacted by worries over sharp decline in TC/RC rates. Markets have also been worried over miners desire to put cap on attractive price participation clauses.

“Wakening LME aluminium prices have impacted domestic aluminium prices. If current weakness in global aluminium prices persists, we could see another domestic price cut of about Rs 5,000-8,000 soon,” Citigroup said in a report. Landed price are currently about Rs 7,400 - lower than the current domestic price.

Price correction in Hindalco and NALCO has been much sharper than the Sensex, as markets have discounted much lower metals prices. Relative PE’s for both Nalco and Hindalco close to levels seen last in 2000-2001. Stock price of Sterlite Industries has fallen drastically 39% in this carnage from Rs 604.05 to Rs 373.85.

However, steel prices continue to remain strong in CIS countries. Pricing visibility for steel appears robust globally. Gap between landed and domestic prices remains positive at Rs 1,600, indicating possibility of domestic hike in July. Market has made no distinction between ferrous and non ferrous metals. Steel equities have come off together with aluminium equities.

Date: 22-Jun-2006

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