Aluminium manufacturers to benefit more due to increased demand of electric vehicles

According to a new study, the growing use of electric vehicles (EVs) in global transportation is excellent for aluminium manufacturers like Hindalco but bad for steel producers. For investors interested in metal equities, global investment firm Jefferies predicts Hindalco's stock price to return roughly 30% higher than rival steel manufacturers Tata Steel and JSW Steel.

Aluminium is the cheapest and lightest metal utilised in the production of electric vehicles, as well as in the aerospace sector, where it helps decrease total structure weight while preserving structural strength. According to reports, the average non-EV automobile consumes 50-70 kilogrammes (kg) of aluminium per year, whereas a motorbike consumes 20-30 kg. Each electric vehicle is estimated to have roughly 250 kg of aluminium on average. As a result, automobiles with aluminium bodies are more expensive than vehicles with steel bodies.

Meanwhile, since September 2021, when Evergrande, China's second largest real estate developer, collapsed under the weight of its own debt, demand for metal commodities such as steel has been declining.

“The slowdown in the property sector added to the pressures of an already weakening economy,” said the report by Jefferies.

Since then, China's economy has been slow, despite the fact that it is the world's largest importer of commodities like steel. Due to concerns such as power shortages in the nation, inadequate investment activity, and so on, China's gross domestic product (GDP) rose at a dismal 4.9% in the July-September quarter, falling short of expectations of 5.2%.

“Although easing policy could lift Chinese demand, we still find risk-reward much inferior to a year ago,” added Jefferies.

Analysts' pessimism weighed heavily on metal equities in India on Tuesday, January 11.