Global Trade Headwinds May Not Deter Aluminium Makers’ Healthy Margins

The profitability of Indian primary aluminium manufacturers1 is expected to remain healthy this fiscal, despite some moderation amid global headwinds, including higher US tariffs. Strong operating efficiencies, low-cost operations, and favourable global demand-supply balance will keep margins over a solid $650 per tonne.

The robust profitability will support healthy operating cash flow required for the ongoing capital expenditure (capex) by domestic primary aluminium players and will keep credit profiles comfortable.

Effective March 2025, the US raised tariff on aluminium imports to 25% for all countries. For India, the increase in tariff from 2.55%2 to 25% will have a limited direct impact as the US accounted for less than 5% of India’s aluminium exports over the past five fiscals.

Nonetheless, with nearly 50% of India’s annual primary aluminium output exported, Indian producers may face heightened competition in their regular overseas markets, as key exporters to the US divert supplies to other geographies. Despite this, trade volume is unlikely to be drastically disrupted, given the historical tight match between global primary aluminium demand and supply, which is expected to continue this fiscal as well (see annexure).

Ankit Hakhu, Director, Crisil Ratings, said, “While global demand growth may moderate this fiscal, surplus will still be limited. This is because the global aluminium market faces limited risk of oversupply, as smelters in major aluminium-producing countries, including India, have consistently operated at utilisation rates well above 90%. Moreover, there is limited primary aluminium capacity in the US3 — which has been relying on imports to meet over 80% for its primary aluminium demand — and setting up new smelter capacities has a long gestation period. Moreover, India’s position as one of the lowest-cost primary aluminium producers globally provides a comfortable cushion against potential increase in competition in overseas markets.”

The cost competitiveness of Indian players is driven by highly integrated operations — with more than 80% backward integration on average — mainly through captive bauxite resources, alumina refineries, and domestic coal linkages, which together account for around three-fourths of the production cost.

While favourable global demand-supply and comfortable position in global cost curves should support heathy utilisation rates, the risk of price volatility could impact profit margins for domestic primary aluminium players. Realisations for domestic producers are linked to London Metal Exchange (LME) prices which rose ~20% on-year to $2,528 in fiscal 2025. This resulted in earnings before interest, taxes, depreciation and amortisation (Ebitda) per tonne improving to more than $900 per tonne in fiscal 2025, a three-year high.

However, aluminium prices on LME have been volatile and moderated to ~$2,350 per tonne in April 20254 from a peak of $2,700 per tonne in March 2025 (refer to annexure), amid uncertainties regarding global macroeconomic growth post the tariff announcements by the US.

Ankush Tyagi, Associate Director, Crisil Ratings, said, “Despite the volatility, aluminium prices on LME could stay above $2,300 per tonne on average this fiscal, given the limited risk of oversupply and the fact that anything materially below these levels will make sizable global capacities economically unviable. This, along with the steady cost of production for Indian primary aluminium players, will keep their operating margins over $650 per tonne this fiscal, compared to a ten-year average of ~$530 per tonne.”

The robust profitability will support the ongoing capacity expansion to meet growing demand, especially in the domestic market, and to increase the share of value-added products in the capacity mix. Furthermore, healthy balance sheets with net leverage below 2.5 times as on March 31, 2025, and comfortable liquidity should support credit profiles.

That said, lower-than-expected metal prices and signs of economic slowdown impacting demand will bear watching.