Aluminium Slump Weighs On Hindalco, NALCO And Vedanta Group Stocks

Shares of aluminium-linked companies declined on June 16 after global aluminium prices fell to their lowest level in more than two months following progress on a peace agreement between the U.S. and Iran. The development raised expectations of smoother trade flows through the Strait of Hormuz, a key route for global commodity shipments.

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On the London Metal Exchange (LME), aluminium settled at $3,379.50 per metric tonne, down 4.4% and marking its lowest closing level since March 27. The decline came after Washington and Tehran announced an interim agreement, with the reopening of the Strait of Hormuz expected once the deal is formally signed later this week.

Metal Stocks Under Pressure

Weakness in aluminium prices spilled over to domestic metal counters. By 9:55 a.m. on June 16, the Nifty Metal index was down around 1.5% at 12,883.45.

The stocks of Vedanta Aluminum and Vedanta Oil & Gas have fallen by almost 5%, whereas those of National Aluminum Company Limited (NALCO) fell by about 4.85%. Hindalco Industries was among the worst-performing stocks in the Nifty 50 index, declining close to 4%.

The correction followed concerns that easing geopolitical risks could lead to an increase in aluminium supply, reducing the scarcity premium that had supported prices in recent months.

Supply Concerns Begin To Ease

Aluminium was being affected by disruption of its supply chain due to damage caused by missiles to smelting plants in West Asia, along with the effects of the restrictions on shipments through the Strait of Hormuz.

While producers managed to find other ways to operate amid the war in the region, they were still struggling with shortages in their supply chains. The prospect of the return of the shipping route means that analysts are beginning to measure the potential effects of new supplies entering the international marketplace.

According to Bank of America, in light of decreased supply risk and unclear demand dynamics, aluminium prices could continue falling in the near term, with the production levels in the Middle East, which account for 10% of the world's output, having significantly fallen in April, while higher supply levels from China could help fill this gap.

The analysts also pointed to the possibility of inventory releases from the Middle East and higher output from Indonesian smelters as factors that could add pressure on prices.

Long-Term Fundamentals Remain Intact

Even though the prices have recently experienced a correction, aluminium prices remain high compared to historical figures. According to Axis Securities, it is not expected that prices would fall below $2,500 per tonne since production costs are increasing along with supply problems.

Aluminium is expected to be in the higher price range between $3,000-$3,800 per tonne in the immediate future, while the longer-term price range should be between $2,800-$3,000 per tonne. In addition, it maintained a positive outlook for Hindalco and NALCO, keeping their forecasted aluminium price range constant until FY26, FY27 and FY28.

There will always be interest in the developments regarding the U.S.-Iran agreement and supply, both of which will affect aluminium prices going forward.