Shares of Aditya Birla Group's Hindalco Industries and state-owned Nalco rallied up to 5% on Wednesday after aluminium prices soared to a 4-year high buoyed by Iran war tensions and possible production cuts by China, the world’s largest manufacturer.
Hindalco gained as much as 4.5% to its day’s high of Rs 1,154 on the BSE, while Nalco surged 5.1% to Rs 437.50. On the London Metal Exchange, the industrial metal increased by 0.6% to reach its highest price since March 7, 2022, at $3,672.50 per metric tonne.
According to a report by Bloomberg, traders are increasingly concerned that Chinese aluminium smelters could be asked to curb production as the country intensifies its review of energy consumption and emissions across major industries.
Chinese smelters have been running at full capacity amid a global supply shortage triggered by the Middle East conflict. Aluminium prices on the London Metal Exchange (LME) have risen since the war began in late February, as supplies from the region were disrupted due to the effective blockade of the Strait of Hormuz.
The report added that Chinese authorities are now looking to rein in excess production as inventories continue to build up. China’s Ministry of Industry and Information Technology said in a statement on May 13 that sectors including steel and oil refining would also come under scrutiny.
Further, investment bank Morgan Stanley said the medium-term demand-supply outlook for the metal remains supportive, with strong sustainability-led demand expected to coincide with constrained supply growth due to China’s smelter caps and slow capacity expansion in other regions.
The brokerage added that near-term factors such as China’s supply discipline, disruptions in the Middle East and elevated energy costs are likely to keep prices firm. It also noted that favourable positioning on the global cost curve and low inventories outside the US should help limit downside risks. Analysts further said India is entering a multi-year growth cycle, which is expected to drive robust demand for aluminium and copper.
Aluminium is Morgan Stanley’s preferred base metal, supported by a tighter demand-supply balance. Supply growth is constrained by China’s capacity cap, slower ramp-up in Indonesia due to power limitations, and limited expansion elsewhere. Recent Middle East disruptions have further tightened the market, with some supply losses likely to persist given long restart timelines. This has driven both LME prices and regional premia higher (Japan, Europe, the US), with the forward curve in steep backwardation and LME on-warrant inventories at multi-month lows amid strong withdrawal demand in Asia. While cost support and tight inventories limit downside risk, any deterioration in global growth could weigh on demand, it said.
“LME inventories remain near historical lows, reflecting tight physical markets and limited buffer against shocks,” it said. With constrained supply flexibility, given China’s capacity cap and slower ex-China additions, low inventories increase the risk of price spikes during demand upcycles or supply disruptions.
Morgan Stanley also initiated coverage with an ‘Overweight’ rating on Hindalco. With a target price of Rs 1,325, the Wall Street major implies an upside potential of more than 20% from the previous closing price. Per the report, Hindalco is well positioned for value unlocking, supported by strong free cash flow (FCF) generation potential over the medium term.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
