Aluminium stocks slide as US-Iran deal eases supply fears, ends war-driven rally

Mumbai: Aluminium stocks fell up to 5% Tuesday after the interim US Iran deal removed supply constraints that had driven a rally in the base metal since the war began in Iran.

Analysts said that the sector could face near term pressure as aluminium prices are likely to fall further.

Vedanta Aluminium Metal dropped 5% while National Aluminium Company and Hindalco fell 4.1% and 3.1% respectively. The Nifty Metal Index slid 1.6% on Tuesday while benchmark Nifty rose 0.6%.

Since the blockage at Strait of Hormuz is expected to open, the imports which were stuck are likely to sail through and restore supply, said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.

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"This implies that the premium that aluminium based companies were enjoying will get eroded," said Trivedi. "If the peace deal is signed on June 19th as anticipated, then further profit booking could drag the metal index 5% lower."

The sudden deal could unlock nearly 10% of global primary aluminium supply-while tumbling energy costs have lowered global production curves. This has forced benchmark LME aluminium down to around $3,374 per metric tonne, said Nishchal Jain, Quant Researcher, Share.Market by Phone Pe.

"The Daily Relative Strength Index (RSI) levels have cooled to a neutral-to-bearish zone, indicating that while short-term dead-cat bounces are possible, the sector faces further near-term consolidation toward a crucial global price floor of $3,200 to $3,250," said Jain.

Aluminium prices on London Metal Exchange (LME) prices slumped over 8% in June so far, after it rallied for six consecutive months, surging nearly 9% in March, at the peak of the war. On Tuesday it fell as much as $3,333.75- after dropping nearly 5% on Monday.

"Considering the importance of aluminum, from consumption perspective these higher prices were not sustainable," Parthiv Jhonsa, VP, Anand Rathi Institutional Equities. "LME prices are expected to be around $3300 for FY27 and $3175 for FY28."

Jhonsa said that the Q1 earnings for these companies could be robust due to increased margins on account of the spike in aluminum prices.

The Nifty Metal Index jumped nearly 7% from the war until Monday while benchmark Nifty declined 5.3% in the same period. "In the near term the rally is expected to be done, and investors are advised to allocate once the index corrects 5-8%," said Trivedi. "Nalco will become attractive after a 15% dip from current levels.

Jain said that Hindalco Industries remains the top defensive pick to accumulate on dips.

"More than half of its revenue comes from its US downstream subsidiary, Novelis, whose margins rely on processing conversion spreads rather than volatile primary LME prices, leaving it structurally insulated," he said.