New Delhi, Jan 8 (FN Bureau) Rating agency Icra on Friday said cash flow visibility due to a sharp recovery in non-ferrous metal prices has led to a revision in the credit outlook of the industry to stable. ‘The credit profile of the domestic primary non-ferrous metal industry has shown signs of improvement in the last few months as prices of the metals have registered sharp recoveries from the lows witnessed in the months of March and April,’ Icra said in a statement. Currently, international prices of aluminium, copper and zinc are up by 12 per cent, 28 per cent and 17 per cent, respectively on a Year-on-Year (Y-o-Y) basis.
The increase is 38 per cent, 70 per cent and 47 per cent from their respective lows registered in March-April last year. The increase in prices in turn is a result of a steady turnaround in demand conditions, Icra said, adding that prices may have also been influenced by the ample liquidity in the global financial markets, which play a role in determining non-ferrous prices. ‘The current buoyancy in prices is a result of the improvement in global macroeconomic sentiments with the beginning of vaccination drive against COVID-19. The favourable momentum is likely to continue in the next 12-15 months, thereby, resulting in a steady turnaround in the risk profile of the industry,’ Icra Senior Vice-President and Group Head Corporate Sector Ratings Jayanta Roy said. In the first half of FY21, the pandemic had severely impacted the global automobile, construction and electrical machinery industries, which together contribute 75-85 per cent to the global non-ferrous metal demand. Consequently, during that period, consumption of these metals had contracted significantly, ranging from 3-4 per cent for copper and zinc, and up to 8 per cent for aluminium on a Y-o-Y basis.
Currently, global demand is on the path to recovery led by a turnaround in demand conditions in China. Although global growth in non-ferrous metal demand on a Y-o-Y basis is estimated to have remained in the negative territory in the third quarter of this financial year, growth outlook is favourable for the coming quarters. The recent improvement in non-ferrous metal prices coupled with a correction in input costs would support consolidated operating margin of the domestic industry, which is likely to improve to 21 per cent in FY21 and subsequently to 23 per cent in FY22 from 15 per cent in FY20. ‘Downside risks, however, remain as the macroeconomic uncertainties due to the COVID-19 pandemic are yet to dissipate. Nevertheless, prices are unlikely to reach the lows of Q1 FY2021, thereby supporting margins,’ Roy said. PTI SID RAM