Indian base metals industry is expected to grow by 8-10 percent annually over the next three years on the back of increased demand from power, construction and automotive sectors, rating agency Moody's said.
"We expect India's consumption of base metals to increase by 8-10 percent annually over the next three years, driven primarily by demand from three sectors, power, construction and automotive," Moody's Vice President - Senior Credit Officer Alan Greene said here.
"Our projections reflect domestic GDP growth -- forecast at 7.5 percent in fiscal year 2016 and 7.6 percent in fiscal 2017 -- and the government's efforts to boost infrastructure spending," he added.
According to Moody's, domestic installed capacity for all three base metals - aluminium, copper and zinc - is sufficient to meet demand growth, having grown sharply over the past decade. However, aluminium sector will become oversupplied as large expansion projects come online over the next three years.
The aluminium manufacturers will continue to rely on exports to maintain high utilisation rates, but increased demand for copper and zinc will absorb some excess capacity, says the rating agency.
Moody's expects profitability to increase for companies with captive raw material sources and adequate scale -- such as Hindalco Industries and HZL -- but smaller players such as Hindustan Copper and National Aluminium Company will be limited by scale and production capacity, respectively.
Vedanta is expanding its aluminium output, but its limited access to raw materials constrains its profitability, Moody's said. In addition, the new mines and mineral law, which came into effect earlier this year, aims to increase the availability of minerals and fuel sources for domestic metals companies.
Prices for these materials should decline as a result and subsequently support metals manufacturers' profitability, notes the rating agency. Moody's said that Indian companies' favourable cost structures insulate them against competitive threats. They will likely become even more cost efficient and profitable as their capacity utilisation rates increase in response to growing domestic demand.