Global Supply Crunch To Push Aluminium Prices To Decade High; Indian Producers To Gain: Crisil

New Delhi, Jun 4 (KNN) A global aluminium supply shortfall arising from the West Asia conflict is likely to push prices to a decade high, providing a significant advantage to Indian primary aluminium producers, as per Crisil Ratings.

The rating agency has projected earnings before interest, taxes, depreciation, and amortization (EBITDA)  of aluminium producers to surpass USD 1,450 per tonne in FY27—marking the highest level in ten years.

The findings are based on an analysis of three domestic primary aluminium producers accounting for approximately 90 per cent of India's 4.6 million tonne installed capacity.

The Supply Shock

The ratings agency highlighted that the Gulf Cooperation Council (GCC) region, which accounted for 8.3 per cent of global aluminium output in 2025, has seen production disrupted by 40–50 per cent due to strikes on smelting infrastructure and gas shortages following the West Asia conflict. As a result, the global supply deficit is projected to widen to 1.5–2.0 million tonnes, a decadal high, compared with under 0.5 million tonnes on average over the past five years.

London Metal Exchange (LME) aluminium prices have consequently averaged above USD 3,500 per tonne — the highest in ten years — since the conflict began.

Ankit Hakhu, Director, Crisil Ratings, said, "Disruption caused by the West Asia conflict is significant, considering the global supply deficit averaged below 0.5 MT over the last 5 years. With global smelting capacities operating above 90 per cent utilization and China’s primary output already near its 45 MT cap, there is limited room to offset the GCC shortfall, further constrained by high lead times to commence or restart fresh production.”

“Even in a scenario of the West Asia conflict being resolved in the next one to two quarters, this deficit is likely to keep prices elevated in the range of USD 3,200-3,300 per tonne through fiscal 2027," Hakhu added.

India's Structural Cost Advantage

Crisil noted that Indian aluminium producers, while benchmarked to LME prices, remain among the lowest-cost globally, with most smelting capacities in the first quartile, driven by two structural advantages. 

They rely on captive coal-based power—accounting for 40–45 per cent of costs—which shields them from global gas price volatility, unlike GCC smelters, and benefit from strong backward integration with 85–90 per cent of alumina needs met in-house using domestic bauxite, insulating them from raw material price swings that make up 30–35 per cent of costs. 

As a result, total production costs are expected to stay relatively stable at USD 1,900–1,950 per tonne this fiscal, compared with USD 1,865 per tonne in fiscal 2026.

Ankush Tyagi, Director, Crisil Ratings, said, "The key advantage Indian producers hold in this milieu is their self-sufficiency in key raw material availability for primary aluminium production. Unlike GCC smelters, Indian players rely mainly on domestically sourced raw materials like coal and bauxite. Thus, a sharp increase in realizations will push operating margins of Indian primary aluminium producers above USD 1,400-1,500 per tonne this fiscal — well above the decadal average of ~USD 560 per tonne."

Demand and Capacity Utilisation

The earnings uplift coincides with capacity expansion by domestic producers amid strong local demand, projected to grow 7–9 per cent this fiscal, supported by electrification and EV adoption, while improving export opportunities—driven by global buyers diversifying away from GCC suppliers—are expected to keep capacity utilisation at a healthy 85–90 per cent despite the additions, the ratings agency noted.

Credit Profiles to Remain Strong

Crisil emphasised that operating cash accruals are set to hit a decadal high this fiscal, with net leverage below 2.0 times supporting stable credit profiles of the aluminium companies. The key risk remains a faster-than-expected recovery in GCC output, which could trigger a sharp correction in LME prices and alter the outlook.

(KNN Bureau)