scorecardresearchNuvama Wealth picks Vedanta in aluminium space; sees uptick in prices ahead

Nuvama Wealth picks Vedanta in aluminium space; sees uptick in prices ahead

Updated: 23 Mar 2023, 11:32 AM IST
TL;DR.
According to the International Aluminium Institute, global aluminium output increased 2.7% on year in February 2023 to 5.27 million tonnes.
The brokerage anticipates a rise in aluminium prices from the present levels of US$2,227 per tonne, which are down 34% from a year ago and 5% month-on-month (MoM).

The brokerage anticipates a rise in aluminium prices from the present levels of US$2,227 per tonne, which are down 34% from a year ago and 5% month-on-month (MoM).

The biggest aluminium producer in the nation, Vedanta Ltd, is brokerage firm Nuvama Wealth Management Ltd's top pick in the aluminium space with a potential for an uptick in the metal's price. It has projected a target price of 428/share for the stock.

In the third quarter of FY23, the company produced 5.66 lakh tonnes of aluminium, and for 9MFY23, it produced 17.16 lakh tonnes.

Vedanta is a subsidiary of Vedanta Resources Ltd, which has major operations in oil and gas, zinc, lead, silver, copper, iron ore, steel, aluminium ,and power in India, South Africa, Namibia, and Australia.

Expect recovery in aluminium prices

The brokerage anticipates a rise in aluminium prices from the present levels of US$2,227 per tonne, which are down 34% from a year ago and 5% month-on-month (MoM).

As summer approaches in China, output will presumably slow down, and downstream demand is anticipated to improve in China, which would help prices of aluminium to rise from their current levels. For FY24 and FY25, the brokerage expects the average price of aluminium to be US$2,500 per tonne.

“We believe the China production to decline with the onset of summer. This, coupled with increasing Chinese domestic demand, should increase from current market price (CMP) of US$2,227/tonne,” said the brokerage in its report.

In February 2023, the domestic aluminium production in China increased by 4.3% on year to 3.1 million tonnes. The output for the months of January and February 2023 was 6.5 million tonnes, an increase of 5.3% on year as the majority of businesses in Guizhou, Guangxi, and Sichuan resumed operations. However, the slow restoration of the power supply hindered the return of producers in Guizhou.

Global aluminium production rises but China major contributor

According to the International Aluminium Institute, global aluminium output increased 2.7% on year in February 2023 to 5.27 million tonnes. The production in China, Africa, and South America grew by 4%, 6%, and 22% on year, respectively, and together they accounted for the majority of the increase. Global aluminium output was down 9.6% MoM in absolute terms.

"World ex-China production, at 2.1 million tonne, was up by 0.5% on year while it was down by 9.6% MoM (absolute basis). The effect of production cuts in Europe continues. Total Europe production at 519 kilo tonne was down by 5% year-on year (YoY)/9.5% MoM. Africa and South America reported production of 130 kilo tonne and 111 kilo tonne, up by 6% and 22% YoY, respectively," said the brokerage in its report.

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First Published: 23 Mar 2023, 11:32 AM IST