The rating agency Icra forecasts firm metal prices and benign inputs costs to enhance the profitability of the domestic non-ferrous metal entities in FY2025. It expects the domestic demand for nonferrous metals to remain healthy at 10 per cent in FY2025, significantly outpacing the tepid growth of 2 per cent in global demand.
“The current supply-demand dynamics remain supportive of firm metal prices in the near term. The three-month rolling forward contract of aluminium, copper and zinc is also trading higher than the spot prices, suggesting that the metal prices are likely to remain healthy in the coming 1-2 quarters.
While the downside risks to metal prices, particularly in the second half of FY2025, cannot be ruled out, the current uptrend in metal prices is likely to result in an 8-9 per cent growth in the realisation for the full fiscal," said Girishkumar Kadam, Senior Vice-president and Group Head, Corporate Sector Ratings, Icra.
Recovery in the manufacturing activities in China coupled with supply-side constraints primarily have lifted the sentiments, resulting in a sharp uptick in metal prices. Non-ferrous metal prices have witnessed a strong recovery of 10 to 15 per cent during April and May 2024 compared to the corresponding period of the previous year.
Globally, a revival in manufacturing activities, primarily in the Chinese market, as demonstrated by an expansion (>50) in the purchasing managers index (PMI) data in March and April 2024, along with easing global inflationary concerns, has supported the overall sentiments. Chinese demand for non-ferrous metals remains healthy, primarily in the renewables and electric vehicles (EV) segments, thus supporting the global demand and offsetting the subpar demand growth in the US and European markets to an extent.
In the US, while the manufacturing PMI expanded in March 2024, it again slipped in April 2024. Europe reported weak manufacturing data for the past two years.
On the supply side, the production of refined copper is expected to remain tight owing to expected supply cuts by Chinese smelters amid a decline in the smelter margins. In addition, recently the US and the UK implemented new sanctions on Russian metals including aluminium and copper, thus increasing the supply bottlenecks at least in the near term.
On the domestic front, the demand for non-ferrous metals is expected to remain healthy at ~10% in FY2025 significantly outpacing the expected growth of 2 per cent in global demand. In addition, the moderation in coal costs is expected to alleviate input cost pressures to an extent.
Icra noted that the domestic e-auction premia on coal had eased in recent months to 50 per cent in April 2024 from the exorbitant levels of 150 per cent seen in the corresponding period of the previous year. The prices of caustic soda and calcined pet coke also moderated in the current fiscal.
“With input costs remaining largely under check along with healthy growth in realisation, the operating margins of the domestic entities are estimated to rise considerably to 23 per cent in FY2025 compared to 17 per cent in FY2024. The credit metrics are also expected to improve with a projected total debt/OPBDITA of 1.8 times and an interest cover of 6.0 times in FY2025 compared to a total Debt/ OPBDITA of 2.0 times and an interest cover of 4.5 times in FY2024,” Kadam added.
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