Global demand has been weak, and expectations of a recovery in China lifting prices haven`t borne fruit.

Aluminium prices have stayed around $2,177 per tonne in the ongoing quarter. Notably, these prices are significantly lower than they were during the previous year. LME aluminium prices had averaged $3,273 a tonne and $2,883 a tonne during the first and second quarters of 2022, respectively.

Aluminium prices remained firm during the first half of 2022 after Russia invaded Ukraine. However, weakening global demand amid recession concerns in the rising interest rate environment have pulled down prices since then. The China demand, which was anticipated to pick up during 2023 after easing of covid curbs, also did not meet expectations.

The decline in LME aluminium prices impacted profitability of leading aluminium makers in the June quarter. The aluminium segment of Vedanta Ltd that contributed around 35% to its overall revenues, saw a significant decline in the operating performance. The segment`s Ebitda (earnings before interest tax depreciation and amortization) declined 6.24% sequentially and 16.8% year-on-year (y-o-y). The company`s profit before tax thereby declined 4% sequentially and 43% y-o-y.

Hindalco also felt a similar impact. Ebitda of the aluminium upstream segment was down 41% y-o-y and 11% sequentially.

Thus, despite a sequential improvement in operating performance by the company`s US subsidiary Novelis, a better performance by the company`s aluminium downstream business and a y-o-y profitability improvement in the copper segment, consolidated net profit of Hindalco was flat sequentially and down 41% year-on-year.

The solace for aluminium manufacturers, however, comes from coal prices which have been coming down since November 2022. Coal prices are expected to stay muted in the current fiscal due to sufficient availability in the global market, subdued global demand and gradual adjustments of the global markets to the Russia-Ukraine war, said CareEdge Research.

Since aluminium production is an energy intensive business, the declining coal prices mean reduced power costs, which may support the profitability of aluminium manufacturers.

For Hindalco, the prospects are supported by its US subsidiary Novelis, which is a converter of aluminium and feels lower impact of aluminium price volatility.

The volumes of Novelis remained impacted by channel destocking in the US. That is over and some restocking has started in the ongoing quarter. The company`s copper and downstream aluminium businesses are also performing well.

For natural resources conglomerate Vedanta, the prospects will also hinge on other base metal prices such as that of zinc and lead. Also, it has exposure to oil production, iron-ore and a power business as well.