Continue to see pressure on domestic aluminium prices: CRISIL

Below is a report on state of the metals industry by CRISIL ResearchSlammed by falling pricesMetal prices plummeted in 2015 due to global slowdown and massive overcapacity, especially in China. Tailing these global trends, domestic steel and aluminium prices are estimated to decline by 16-19% and 15-17% respectively, in the current fiscal. Consequently, the operating margins of the steel and aluminium sectors are expected to tumble by 500-700 basis points (bps) and 1,000-1,200 bps, respectively. In the wake of deteriorating profitability and rising imports, the government imposed a minimum import price (MIP) on 173 steel products on February 5, 2016, for six months. This levy comes as a breather for the ailing industry, as it is expected to curb imports and also marginally improve pricing flexibility of producers in the short term. We expect operating profitability of steel industry to improve slightly in the next fiscal especially if MIP is extended beyond six months. However, debt coverage ratios are unlikely to improve significantly. No MIP/similar measures have been announced to help the aluminium industry. Hence, we expect domestic aluminium prices to continue their southward sojourn and decline further by 3-5% next fiscal. Moreover, with use of high-cost captive coal, the profitability of domestic aluminium players will deteriorate and some may even incur cash losse