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Consumption of aluminium, copper, zinc likely to be at 2-4%: Report

Mumbai, Jan 7 (PTI) The consumption growth of aluminium, copper and zinc is likely to be muted at 2-4 per cent following slowdown in automobile and construction sectors, according to a report.

Domestic demand for non-ferrous metals in 2019-20 has been impacted by the slowdown in the automobile and construction sectors, rating agency Icra said in a report.

Consequently, consumption growth of aluminium, copper and zinc was earlier expected to be 3-5 per cent, it added.

Notwithstanding the muted demand growth, the impact of the shutdown of Vedanta's copper complex has resulted in a shortage of copper in India.

The deficit in copper, which was at 39 per cent of consumption, is likely to expand to 43-45 per cent in 2019-20, it said.

As a result, India turned into a net importer of refined copper in 2018-19 from being a net exporter till 2017-18, it added.

The country, however, remains a net exporter of aluminium and zinc as domestic capacities are higher than demand, and manufacturers operate the plants at high asset utilisation levels, it added.

'The prevailing global supply demand scenario in both aluminium and copper has been conducive to a price recovery, given the deficits of these metals in the physical market. But weak macroeconomic sentiments due to the trade tensions weighed on prices thus far,' Icra Senior Vice-President and Group Head, Corporate Sector Ratings, Jayanta Roy said.

Macro-economic uncertainties and weaker sentiments due to the trade wars have led to slowdowns in global consumption growth rates of aluminium and copper to 0.1 per cent and 0.3 per cent, respectively, during 9 month of CY2019, from the 4 per cent and 2.3 per cent growth seen in CY2018.

As per Icra, despite muted consumption levels, the markets of these two non-ferrous metals continued to remain in deficits in this period, with shortages in fact expanding on a year-on-year basis, as production growth rates were even lower than the demand.

The slowdown in production growth of aluminium and copper was in turn a result of capacity constraints, which is unlikely to improve significantly in the near term as utilisation rates of operating capacities is already high.

The global aluminium market has remained in deficits, varying from 0.07 to 1.05 million tonnes (MMT) for the last 10 quarters, because of capacity cutbacks in China.

While aluminium production in the country started increasing in the second half of the last calendar year, a further shut down of some loss-making capacities resulted in a production de-growth from March to September 2019. No meaningful improvement in the supply scenario is envisaged in the near term as the idled capacities are unlikely to resume production unless aluminium price strengthens further.

The copper market has also remained in deficits in the last six quarters post shutdown of the 0.4 MMT copper plant of Vedanta in Tuticorin, Icra report explained.

On the other hand, a prevailing surplus of zinc in the global market has kept its price subdued. For instance, in the last three months zinc prices have corrected by 3 per cent. During the current calendar year, global mine production of zinc has increased through a ramp up in production in newly operationalised mines in Australia and South Africa, it added.

Although cumulatively the global zinc market was in a deficit of 0.21 MMT during 9 month of CY2019, the market turned into a surplus in October 2019, and the trend is likely to continue, going forward, which in turn would keep zinc prices under check, it added. PTI SM HRS