London Metal Exchange (LME) prices had declined to $1,158 per tonne levels in March this year--the lowest in the last five years--and has been rising steadily since to $1,520 a tonne levels this week, resulting in the widening differential between domestic and CIF prices.

Senior industry officials confirmed that all the primary aluminium producers were mulling a price hike in the Rs 5,000-Rs 7,000 a tonne range and that the new prices will come into effect from October 1. "The price differential has never been this high," they added.

Prices had last been revised upwards in July this year, when prices were raised by around Rs 3,000 a tonne. The fresh revision will lead to an increase of Rs 8,000-Rs 10,000 per tonne for different companies, or around 14 per cent, in just three months.

Officials of Hindalco, the country's largest producer, declined from giving any information on the proposed price revision. "We are yet to take any decision," they said. The pricing committees of Nalco and Balco are expected to announce their decisions within the next week, sources said.

The move is likely to have cascading effect on prices at all stages of aluminium production. Downstream producers led by Indal will also have to go in for a price revision of semi-fabricated products.

Jairaj Singh, head of sheets business at Indal, said: "If the price hike takes place, it will be very difficult for any of the user companies to absorb the increase. With international prices rising, and primary producers hiking prices every three months, some user companies may begin to look at alternatives to aluminium."

Most downstream producers, already plagued by an adverse customs duty regime, feel the price hike will have to be passed on entirely as no company will be able to take such a hit on its bottomline.

Presently Hindalco's prices stand at Rs 76,250 per tonne, the highest in India, while that of Nalco is Rs 69,500 a tonne.

The hardening of international prices will also see higher volume export from Indian companies with surplus alumina.

INSIGHT
Firms to benefit from hike

Given the resurgence in global demand, the premiums for the white metal have also moved northwards in recent times. Given this scenario and the cushion between domestic and international prices, the hike by domestic manufacturers was always expected. In fact, aluminium prices on the LME have been on a major upswing trading at $1,520 per tonne, a far cry from the seven-year low of last year, when prices of the white metal had crashed to the $1,060 levels during April-June 1998. Thus, what the firming up of aluminium prices on the LME allows is the leverage required by domestic aluminimum manufacturers to hike prices. Obviously, all the three aluminium majors will stand to benefit from the price hike.

-- Percy Dubash