Aluminium faces highest upside risk if West Asia conflict persists, Vedanta best placed: CLSA

A prolonged conflict in the Middle East could have a pronounced impact on energy-linked commodities and transportation costs, pushing up the global cost curve and tightening the demand-supply balance, brokerage firm CLSA said in a note on metals.

The brokerage pointed to the European energy crisis as a precedent, citing that once capacities are mothballed due to high energy costs, they often take longer to restart and in some cases may remain shut for an extended period.

Among industrial and bulk commodities, aluminium faces the highest upside risk as nearly 9% of global capacity is located in the Middle East.

CLSA said Vedanta is best positioned to benefit from this trend given its exposure to aluminium, zinc and oil.

The brokerage estimates a mark-to-market implied value of ₹1,030 per share versus its base case valuation of ₹835.

However, the brokerage cautioned that higher fuel costs could weigh on the profitability of cement companies unless they are able to offset the pressure through commensurate price increases.

Despite the geopolitical developments, most metals are headed for a weekly decline.

Gold is down about 2.5% for the week, while silver has fallen nearly 10%. Copper has declined around 3%, zinc about 2%, and tin roughly 5%.

Among precious metals, platinum is down about 9% and palladium has fallen nearly 8% this week.

Aluminium, however, is bucking the trend and is up about 4% for the week.

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