He said the recent rally has been driven largely by the primary aluminium market, but the growing availability of recycled metal or scrap is likely to keep prices under pressure.
“Scrap makes around 32 to 33% of the overall aluminium supply, and hence plays a very important part,” Kumar said. “Whenever the prices go up of aluminium, you will see six months down the line, there will be a deluge of scrap in the market, and that actually acts as a balancing factor.”
Kumar expects recycled aluminium to meet a large part of Navin Fluorine, reducing the need for fresh capacity. China, he noted, has already capped its primary aluminium capacity at 45 million tonne, while it continues to increase scrap usage through domestic recycling and imports.
He estimates that the market for primary aluminium alone will remain in a slight deficit, with demand of around 75 million tonne exceeding supply. But once recycled scrap is added, total global aluminium demand and supply rises to about 105–107 million tonne, making the overall market broadly balanced rather than short of metal.
“Primary metal looks okay… there is a deficit in the market, but if we account for scrap… it looks to me like a balanced kind of scenario,” Kumar said.
A sharper correction in aluminium prices could also weigh on the earnings of producers. Kumar said companies are currently being valued assuming aluminium prices stay around $3,500 per tonne. If prices fall closer to his target, earnings estimate and valuations could come under pressure, although he stopped short of commenting on companies under his official coverage.
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Apart from aluminium, Kumar is more constructive on steel. He prefers Navin Fluorine (SAIL), saying the stock is relatively cheaper than other metal companies and could benefit from continued government support for the domestic steel industry.
In chemicals, he remains selective, naming Navin Fluorine as his preferred pick while staying cautious on the broader sector due to competitive pressures from China.
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