Aluminium: Duty cut to keep prices in check

The reduction in customs duties on non-ferrous metals would keep a check on a rise in prices, as landed cost of these would effectively reduce, thus reducing the net difference between landed and domestic costs. Thus, in this sense, it is a negative for players like Hindalco, Nalco and Hindustan Zinc. However, the effect of this would be more prominent in times of cyclical downturns.

The budget proposal pertaining to the non-ferrous metals has been marginally negative. However, we continue to maintain our positive stance towards the aluminium and copper sectors post the Budget. While we admit that the reduction in customs duty would put pressure on copper margins, over the medium-term, the prospects for both copper and aluminium seem promising. This is on the back of a global economic recovery and a stronger domestic economic growth. Further, the aluminium sector will benefit from impressive growth potential of transport, construction and packaging sectors. The budget proposals favoring the power sector are also a big positive (44% of total domestic aluminium is consumed by power). The global recovery in aluminium demand, led by major economies like the US, Japan and China, is intact. The average prices of these metals, which have been ruling at multi-year highs for sometime now. Therefore, are it is unlikely to weaken much in the medium-term on a YoY basis

Reduction in custom duty on aluminum and copper from 15% to 10%

Lower excise duty to perk up domestic demand.

Finance minister has reaffirmed the thrust on infrastructure development by announcing new infrastructure projects.

Peak customs duty reduced from 30% to 25%.

Decrease in freight rate by 5.3%. Confessional freight for short distance transportation.

Surcharge on corporate tax halved from the current 5% to 2.5%.

Customs duty reduced from 20% to 15% on copper.

A surcharge of 2% on account of education cess will be imposed on corporate tax.

The budget announcement is a negative for copper converters. It must be noted that the customs duty on copper concentrates has been maintained at 5% while that of copper has been reduced from 15% to 10% thus reducing the net effective buffer available to copper converters from 10% to 5%.

Also, the reduction in customs duties on non-ferrous metals is likely to keep a check on a rise in prices as landed cost of these would effectively reduce, thus reducing the net difference between landed and domestic costs.