Domestic non-ferrous metal to post stable earnings in FY25, demand growth to remain healthy at ~10%, says ICRA

The domestic non-ferrous metal industry would post a stable earnings in FY2025, considering steady movement in realizations and an easing of input cost pressure to an extent, said a report by ICRA. The domestic demand growth, it added, is expected to remain healthy at ~10 per cent in FY2025 and would significantly outpace the expected growth of ~2 per cent in global demand. The operating margin of domestic players is also likely to remain stable at 17-17.5 per cent in FY2025, similar to the levels estimated in FY2024. As a result, ICRA maintains a Stable outlook on the sector.

Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA, said, “With input costs remaining largely under check, the domestic entities are expected to register operating margins of 17-17.5 percent in FY2025, like the levels estimated in FY2024. That said, with the commodity upcycle moderating since FY2023, domestic entities’ cash flows have reduced from their record highs, thus increasing their dependence on external financing to meet their committed expansion plans. This trend has been visible from the 13.8 percent and 14.3 per cent growth in the sector’s bank borrowings in FY2023 and FY2024 respectively. Therefore, the industry’s leverage (total debt to operating profits) has steadily increased from 1.8 times in FY2023 to ~2.2 times in FY2024 and FY2025. However, these leverage levels are lower compared to the FY2016-FY2020 average of ~3.5 times reported during the pre-Covid era. At the current level, the industry would remain resilient to project-related risks''.

The international prices of the three non-ferrous metals viz. aluminum, copper and zinc witnessed divergent trends in March 2024. While aluminum and zinc prices remained range-bound, copper prices increased by ~5 per cent in March 2024 amid expected supply cuts by Chinese smelters. The prices are likely to further strengthen as the demand-supply gap widens. Further, an unexpected supply disruption in the copper mines in Chile and Panama saw significant correction in treatment and refining charges (Tc/Rc), with the current spot rate at ~$12/tonne compared to $80-85/tonne in 9M FY2024. “The sharp correction in Tc/Rc has adversely impacted the copper smelter margins and top Chinese smelters recently agreed to embark on production cuts at loss-making plants, without specifically highlighting the extent of the reduction,” ICRA said.

On the domestic front, the apparent consumption growth for non-ferrous metals remained healthy at ~10-13 per cent in 9M FY2024 supported by the Government’s thrust on infrastructure development and favourable demand from the renewables/electric vehicle sectors. ICRA said that while the demand is expected to remain soft over the next two quarters with the general elections in picture, the overall demand growth is expected to remain comfortable at ~10 percent in FY2024 and FY2025.

In addition, the moderation in coal costs, if sustained, is expected to alleviate input cost pressures to an extent. ICRA notes that the domestic e-auction premia on coal had eased in recent months to ~40 per cent in February 2024 from the exorbitant levels of >180 per cent seen in the corresponding period of the previous year. The prices of caustic soda and calcined pet coke also moderated in the current fiscal.
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