Met­als Prices Have Bot­tomed Out, says Tom Al­banese

Re­cent ral­lies may help Vedanta to take a relook at the pos­si­bil­ity of get­ting into steel busi­ness in near fu­ture

The Economic Times - - Companies: Pursuit Of Profit -

Kolkata: Tom Al­banese, CEO of Vedanta Ltd, be­lieves the met­als sec­tor has fi­nally bot­tomed out and could be re­trac­ing its steps to mir­ror the buoy­ant sec­ond-half of 2009. The strength of the rally seen in nearly all the prod­ucts it pro­duces also seems to have given Vedanta hope to relook at the pos­si­bil­ity of get­ting into steel busi­ness in the near fu­ture.

“We think the metal sec­tor has gone past its bot­tom. We are see­ing it in the strength of the rally. In nearly all the prod­ucts we pro­duce, prices have im­proved by 20100% in the past two months, Al­banese told ET in an in­ter­ac­tion soon af­ter the com­pany de­clared its au­dited fi­nan­cial re­sults for 2015-16. Al­banese was re­fer­ring to the bounce back in metal prices in the sec­ond half of 2009, re­cov­er­ing from the liq­uid­ity cri­sis of 2008.

Anil Agar­wal’s oil to alu­minium re­sources ma­jor Vedanta on Thurs­day posted a loss of ₹ 11,181 crore in Q4FY16 based on a se­ries of im­pair­ment charges as global com­mod­ity prices plunged. Vedanta in­curred some ₹ 12,304 crore of good­will im­pair­ment in Q4 of which, ₹ 10,074 crore per­tained to Cairn trig­gered by fall in oil prices. Fur­ther in light of the slid­ing iron ore prices, it pro­vide for ac­qui­si­tion good­will and car­ry­ing value of ex­ploratory as­sets in West­ern Clus­ter, Liberia to the tune of ₹ 1,490 crore, while Cop­per Mines of Tas­ma­nia and Bel­lary Kar­nataka (Iron Ore) in­curred an im­pair­ment charge of ₹ 456 crore. How­ever, with global com­mod­ity prices im­prov­ing, Vedanta could be see­ing the end of such im­pair­ment charges.

Be­tween Fe­bru­ary and April 2016, oil prices have im­proved from $28 to $40 a bar­rel, iron ore has al­most dou­bled from $37 to $70 a tonne; while zinc has gone up 90% to $1,950 per tonne. Cop­per has risen 25% to $4,930, while alu­minium is up 20% hav­ing touched $1,650 a tonne. Most of this is based on global mar­ket cues.

In the past two years, met­als growth in In­dia has re­mained in sin­gle-digit zone close to GDP rates. “How­ever, historic data sug­gests af­ter per capita GDP crosses $1500, there comes at cer­tain tip­ping point when metal de­mand rises above the GDP growth,” Al­banese said adding, “In In­dia’s case, I am cer­tain that the tip­ping point is not too far off.”


“We are hope­ful of see­ing greater met­als and energy con­sump­tion in In­dia as part of the Make in In­dia agenda,” Al­banese said. A ge­ol­o­gist by train­ing, he is con­vinced that “while In­dia has the en­dow­ment in met­als and energy, it has to com­bine this en­dow­ment with in­vestor-friendly poli­cies based on its own ca­pa­bil­i­ties and best prac­tices in tech­nol­ogy. De­fence man­u­fac­tur­ing, which is alu­minium in­ten­sive, is an­other area with tremen­dous op­por­tu­nity that Vedanta would be look­ing at in the next 5-10 years, given its strength in the metal and other ex­otic al­loys, Al­banese said.

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