Metals and Mining Sector Update : Non-ferrous sector – Grinding higher By Emkay Global Financial Services Ltd
Aluminium prices have moved up in recent weeks, back to USD2,700/t from the tariff-shock low of USD2,275/t in Apr-25, hitting our 0-6M target of USD2,700/t. Growing strength in industrial metals is supported by the view that a global cyclical recovery could ensue with the expected rate cut by the Fed. Aluminium is usually considered to be a convex trade on global growth due to its end-use in numerous applications (economic growth drivers). Additionally, the tight supply-demand dynamic provides reasonable support. VEDL benefits the most in the current environment of rising aluminium, zinc, and silver prices, alongside falling alumina prices. We retain our positive view on the sector.
Non-ferrous metals charging up on the reflation narrative
Aluminium prices have moved up in recent weeks, back to USD2,700/t from the tariffshock low of USD2,275/t in Apr-25, hitting our 0-6M target of USD2,700/t. The recent upmove is supported by the view that a global cyclical recovery could ensue with the expected rate cut by the Fed this month which has now become a market base case. Interestingly, aluminium’s fundamentals are breaking away from alumina – typically, aluminium and its raw material chain move in tandem with procyclical cost dynamics. Coming to other metals, zinc prices have steadied at higher levels of USD2,800-2,900/t even as supply-demand is in surplus, and silver is gaining momentum. Essentially, this indicates a favorable macro backdrop is shaping up; metals are joining the jamboree led by gold, supported by weakness in the Dollar Index and easing financial conditions.
Aluminium supply side remains tight; call on scrap has never been stronger
Globally, primary aluminium’s supply-demand balance continues to remain tight with capacity utilization at 98%. Additionally, China’s 45mt capacity cap on aluminium remains in place which constrains supply growth. Call on scrap is an interesting phenomenon in metal markets which signals that deficits in commodity supply-demand lead to addition of recycling capacities and tightness in the scrap market to the point that scrap spreads become uneconomical for the marginal recyclers. There is a growing call from European lobbies for export controls on aluminium scrap with a duty of 30%. We think the structural tightness in aluminium is unlikely to ease; in fact, it is growing. We do not see a new supply wave either, as we reckon that incentive prices required for large-scale project announcements sit at USD2,800-3,000/t. We retain our positive view on aluminium, while maintaining price forecasts at USD2,600/2,700/t for FY27E/28E.
Stacking up of equity exposures
HNDL derives about half of its EBITDA from the aluminium business, which benefits from the ongoing metal strength. Likewise, VEDL derives 80% of its EBITDA (aluminium + zinc + silver). In addition, spread expansion from rising aluminium and falling alumina prices plays in favor due to VEDL’s net-short alumina exposure. NACL sees 60% EBITDA from aluminium and 40% from alumina. Hindustan Zinc (Not Rated) is a key beneficiary of the strength in zinc and silver prices.
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