Hindalco, Nalco Shares Rise 5% as Aluminium Prices Hit Four-Year High Amid US-Iran Tensions

Aluminium Prices Surge to Four-Year High Amid Escalating Iran War Tensions

Aluminium prices rallied to a four-year high on Wednesday, boosting shares of Aditya Birla Group company Hindalco Industries and state-owned Nalco up to 5%. The surge was driven by escalating Iran war tensions and concerns over possible production cuts in China, the world's largest aluminium producer.

The rally was also supported by expectations of strong business performance following healthy March quarter revenues. Market experts believe Hindalco is likely to outperform its peers in the near term, aided by improving performance across business segments and rising aluminium prices globally. Shares of Hindalco climbed as much as 4.5% to hit a fresh 52-week high of ₹1,154 on the BSE, while Nalco surged 5.1% to ₹437.50.

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Aluminium prices on the London Metal Exchange (LME) rose 0.6% to $3,672.50 per metric tonne, the highest level since March 7, 2022. Traders are increasingly worried that Chinese aluminium smelters may be asked to reduce production as Beijing intensifies scrutiny of energy consumption and emissions across major industries.

According to a Bloomberg report, Chinese smelters have been operating at full capacity amid a global supply shortage triggered by the Middle East conflict. Aluminium prices on the LME have steadily risen since the war began in late February as supplies from the region were disrupted following the effective blockade of the Strait of Hormuz.

Morgan Stanley, an investment bank, has a bullish outlook on aluminium prices. According to the brokerage, the medium-term demand-supply outlook for aluminium remains favourable, supported by strong sustainability-driven demand and constrained supply growth due to China's smelter capacity caps and slow expansion in other regions.

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The brokerage also highlighted that the forward curve remains in steep backwardation while LME on-warrant inventories are hovering near multi-month lows amid strong withdrawal demand in Asia. Although tight inventories and cost support may limit downside risks, the brokerage cautioned that any deterioration in global economic growth could weigh on demand.

Morgan Stanley initiated coverage on Hindalco with an 'Overweight' rating and assigned a target price of ₹1,325, implying an upside potential of more than 20% from the previous closing price. According to the brokerage, Hindalco remains well positioned for value unlocking, supported by strong free cash flow generation potential over the medium term.