Indian state-owned aluminium smelter National Aluminium Company (Nalco) reported earnings for the April to June quarter earlier this week. A weak rupee coupled with alumina prices on the rebound teamed up to push financial numbers skyward in the period.
As 46 percent of the firm’s sales are of alumina (a yearly total of approximately 1.3 million metric tons), the drop in the rupee’s value has been a significant boon to the firm. A single point in the rupee’s devaluation as compared to the dollar translates to a surge in net profits of ₹130-140 million a month, or ₹1.57 billion per annum.
Nalco has made a business decision to sell alumina almost exclusively on the spot market rather than locking up long-term contracts. Chairman and Managing Director Tapan Kumar Chand says this yields an increased margin over standard prices.
“Due to our timely supplies backed by efficient logistics and quality positioning of products, Nalco commands a premium of 10 per cent over the index price in spot alumina sales,” he explained.
In addition to a sagging rupee, the rise in alumina prices has been good for Nalco’s bottom line. Sanctions on Rusal and production interruptions at Alunorte have combined to tighten up supplies, which sent prices hurtling skyward.
“For every $10 rise in alumina prices, Nalco straightway gains ₹910 million net profit. For instance, when alumina prices jumped by $51 earlier this month, Nalco’s net profit is estimated to have strengthened by ₹400 million. We believe alumina prices would in the range of $520-530 in Q2.”
With these factors in place, the stage was set for a strong quarter for Nalco, and the numbers did not disappoint. In the just-ended quarter the firm realized a net profit of ₹6.87 billion. On the back of an 11-percent rise in alumina production to a record high of 583 thousand metric tons, alumina sales rose 24 percent year-on-year, realizing a profit of US$562 per metric ton in the quarter.
According to a report on Nalco’s earnings released by Motilal Oswal Financial Services Ltd, the firm’s EBITDA is likely to jump by 71 percent to ₹28.4 billion for the balance of the fiscal year thanks to continuing problems with the global alumina supply.
“Nalco is likely to benefit from strong alumina prices, led by the closure of (Norsk) Hydro’s alumina facility and shutdowns at Chinese refineries. Spot alumina prices are trading above $500 per tonne versus our estimate of $450 for the remainder of FY19 and FY20. Nalco is a key beneficiary of higher alumina prices, given its net long position and advantage of low cost bauxite,” the financial services firm forecast.