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Credit Rating Agency ICRA in its latest report has said that the earnings of domestic non-ferrous metal industry players is expected to remain weak in the ongoing fiscal (FY24), after a lacklustre performance in the last fiscal. Significant metal price corrections remain the key headwind affecting the margins, with no immediate relief in sight. The moderation in earnings, combined with the committed expansion plans of the players, is expected to increase the industry’s leverage in FY24. However, the debt protection metrics remain adequate in the base case scenario and, therefore, ICRA maintains a Stable outlook on the sector.

According to the report, international prices of the three non-ferrous metals viz. aluminium, copper and zinc witnessed corrections of 11%, 8% and 30% respectively in the last six months, owing to global macroeconomic uncertainties and weaker-than-earlier expected recovery in Chinese demand. While the calendar year commenced with a recovery in metal prices in January 2023 following the lifting of lockdowns in China, the rally was short-lived as metal prices plummeted again in subsequent months, due to an uncertainty over the strength of China’s recovery. Global consumption growth of these metals registered a slowdown in H1 CY23 and, going forward, growth is expected to remain muted in the current calendar year as well. In recent months, the regional premia across markets also remained subdued owing to bearish macro-economic sentiments. 

The report said in the domestic market, however, the demand remains resilient and government’s capital expenditure (capex) drive is expected to support domestic non-ferrous metal consumption growth at 9% in FY24, after growing at a healthy rate of 12% in FY23. In addition, the moderation in coal costs, if sustained, is expected to alleviate input cost pressures to an extent. It noted that the domestic e-auction premia on coal have eased in recent months at 78% in May 2023 from the exorbitant levels of >400% seen in the corresponding period of previous year. Nonetheless, industry profitability is expected to remain under pressure in FY24 with significant correction in metal prices in recent months. ICRA believes that price will remain range-bound at current levels in the near term.