Another data point is that of alumina whose prices have also gone to almost pre-covid levels (LME 1 month forward prices)
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Aluminum margins for Hindalco was ~19% this quarter, demand for the aluminum division of Hindalco is at 85% pre-COVID level. Demand is mostly coming back from China, and Chinese aluminum prices have gone beyond LME prices. Average aluminum prices during the last quarter was $1490, its currently $1750. Market is unsure of sustainability of this because the LME price rise has been very sharp. Here are the two videos of Hindalco management interaction (video1, video2)
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Global peer Norsk Hydro (largest producer of alumina and bauxite) has temporarily halted production of alumina.
https://seekingalpha.com/news/3606883-norsk-hydro-stops-paragominas-bauxite-pipeline-ops
Update: Nice article from BQ
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Got this from the net on the temporary halt of alumina production
https://apnews.com/dca65eca5129955db192e81e8434fb62#:~:text=Hydro%20has%20halted%20operation%20of,and%20reducing%20production%20at%20Alunorte.&text=Hydro%20is%20taking%20all%20necessary%20measures%20to%20mitigate%20any%20customer%20impact.
Looks to be for a 2 months period
Its an low risk moderate return type of stock today, The over supply scenario globally expected to last for 1-2 years, bad thing about this recessions was globally central banks bailed out everyone so, demand is gone ( real economy is in pain) but supply has not diminished ( not many mining companies went bankrupt)
but anyways if one expects demand to catch up in 3-5 years you can expected to make 10-15% kind of CAGR in 5 years.
My worry is there are other ways to make these returns ( bond markets - many companies at 10%) but after 3-5 years when you sell will you have the opportunities you have today in the market ? Will you have the companies like Edelweiss , SIB trading at 10-15% YTM in bond markets ( of course risks are there) but we may have markets which discounting all the risks 5 years from now.
In short cyclicals my problem is it’s another headache to time selling and then find our new thing. ( there is additional opportunity cost involved here) .
i want at least 4-5 x from cyclicals today not 2x (in 5 years), realistically we should not expect it to trade Rs 150- 200, i think Rs 60 is a good case scenario as supply side of industry is not affected ( bailed out by central banks).
Thoughts invited.
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Results declared today, aluminum division is back into black. Overall reports a small net profit of 13 cr. One weird thing was in the notes to account section containing this. I didn’t find these joint ventures in their previous annual report, so its probably a recent joint venture.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/c8c7bff5-b968-4500-8e1e-689eda705d24.pdf
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CNBC interview (link)
- Aluminum prices hovering around $1750; Below $1800, smelter plants are not viable globally; Get a premium pricing of $80-100 over LME prices
- Last year NALCO’s alumina production was 21 lakh ton; this year trying to reach 20.5 lakh ton (current quarter demand has gone up and Indian demand should reach last year numbers of 36 lakh ton)
- Utkal-D mine: got forest clearance; start mining operations this year; will add to profitability; Expect saving Rs. 200-300/ton
- Alumina prices: $260-280 in last quarter, in last tender prices were $300
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is anybody aware of the comparative cost of aluminium production for Nalco, Hindalco & Vedanta?
sorry for my ignorance - but can you explain - what all different substances do you include in ‘Commodities’ ? - - metals- Ferrous and Nonferrous… sugar … oil … - is Cement / coffee also included?
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Good set of results from NALCO, aluminium division reported 14.7% YOY growth in sales. Chemicals division de-grew in revenues by 14.5%, however margins were higher resulting in similar PBT compared to last year. Both divisions are in black now. Good cashflow generation leads to slightly higher cash balance (~2090 cr.; increased by ~100cr.).
Dislosure: Invested (position size here)
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Chart of AL Vs NALCO - Clear divergence currently, it tends to auto correct over time whenever it happened in past…
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Came across some very interesting charts on twitter by Dhruva - https://twitter.com/Dhruvapandey/status/1326420389233373184?s=08
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Research Report from Katalyst Wealth on NALCO for reference.
Few excerpts below:
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NALCO - Last month volume in NSE is highest in the history (18 years - as per zerodha’s chart). Is it something that big players are entered here? Is there some fundamental change?
Disclosure: I have invested in NALCO.
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Nalco’s Board to consider the Buyback of shares. The Board meeting is scheduled on 27th January 2021.
Company comes up with a large buyback of ~7% equity shares (~749 cr.) at a price of 57.5 via tender route. Record date is 8th February.
Disclosure: Invested
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