Users of aluminium, such as the food packaging industry, which includes carbonated drinks, foil wrappings and bottle tops, are expected to benefit significantly from a further reduction in their input costs in 2009 as the prices of the non-ferrous metal are likely to weaken further next year due to an increase in global surplus.

HSBC, in its recent report, said that global aluminium surplus is expected to be at 1.185 MT next calendar year, as compared to a surplus estimated at 1.09 MT this year. Global surplus will increase next year as demand in the industrialised world comprising Europe, Japan and the US is expected to remain weak. However, it would be partly offset by Chinese demand, which may revive in the middle of next year, given the latest stimulus package announced by the country.

Furthermore, Deutsche Bank, in its report, indicated that as long as deleveraging and speculative selling continues for aluminium, risks of the commodity sell-off would remain an overhang on aluminium suppliers’ stock prices.

Currently, aluminium is trading at $1543 per tonne levels on the London Metal Exchange and it has declined by about 46% from the average prices of March 2008.

Major Indian suppliers of the non-ferrous metal include Hindalco and Nalco. Analysts point out that in the case of Hindalco — at its key Canada-based subsidiary, Novelis — the company could be adversely affected by a possible decrease in shipments of aluminium in the North American and European operations in the near-term. This could possibly offset reduced input costs, such as energy, at the overseas operations. Citigroup forecasted Hindalco’s EPS at Rs 10.1 in FY10, as compared with an estimate of Rs 17.3 for FY09.

Novelis posted net sales for the six months ended September 2008, at $6.06 billion, a rise of 7.5% y-o-y, while net sales of Hindalco, for its domestic operations, rose 7% to Rs 10,330.7 crore during the first half of FY09. A questionnaire sent to Hindalco and Nalco, regarding their business strategy to deal with a weak outlook for aluminium, went unanswered.