Why Vedanta, NALCO, and Hindalco Shares Face a Potential 40% Crash

The aluminium sector is facing a significant storm as InCred Equities issues a stark warning to investors. With aluminium prices in freefall, the brokerage has advised an immediate exit from aluminium stocks, citing a potential downside of 30–40% for major players like Vedanta Aluminium, NALCO, and Hindalco Industries.

The Fallacy of the Primary Metal Scarcity Argument

The core of InCred Equities' bearish outlook lies in how the market is currently valuing aluminium. Most investors view the metal through the lens of a primary commodity—similar to crude oil or coal—where supply constraints drive prices upward. However, the brokerage argues that aluminium is fundamentally different because it is an "above-ground circular metal."

Unlike fossil fuels, which are consumed and gone, nearly 1.5 billion tonnes of aluminium remain available above ground. In fact, almost 80% of all aluminium ever produced remains part of the usable metal pool. InCred suggests that the true driver of supply is not just primary smelter output, but the efficiency of the recycling ecosystem—how quickly scrap can be collected, sorted, and reintroduced into the supply chain.

Lessons from China’s Secondary Aluminium Surge

While primary aluminium output in China has risen from 41.6 million tonnes (mt) in 2023 to 44.0 mt in 2024—nearing its 45 mtpa policy cap—this "tight" primary supply is being offset by a massive secondary market.

The brokerage highlighted that China’s secondary aluminium consumption is projected to rise from 12.7 mt in 2024 to 13.35 mt in 2025. Furthermore, scrap imports are expected to increase from 1.7 mt in 2023 to 2.02 mt in 2025. Because a vast majority of China’s scrap supply is domestic, the visible deficit in primary production is being quietly replenished by rising recycling capacities and scrap availability.

Geopolitical Risks and Stretched Valuations

Investors have also been pricing in a "war-risk premium" due to disruptions in the Middle East. However, InCred views this as a temporary rather than a structural supply shock. While approximately 2.2 mtpa of primary capacity was affected, supply from major producers like Qatar Aluminium and Alba is expected to normalize quickly. As this premium unwinds, London Metal Exchange (LME) aluminium prices are expected to correct.

With aluminium prices vulnerable to falling toward the $800/ton mark, the current valuations of Indian metal giants appear overextended. InCred has issued a ‘Reduce’ call on NALCO and Hindalco Industries, noting that these stocks have already seen declines of up to 16% over the past month.

Key Takeaways

  • Downside Risk: InCred Equities warns of a potential 30–40% correction in aluminium stocks due to mispriced supply-demand dynamics.
  • Circular Economy Factor: The market is overlooking the massive "above-ground" supply of recyclable aluminium, which mitigates primary production shortages.
  • Sell Rating: The brokerage advises exiting positions in NALCO, Hindalco, and Vedanta Aluminium as LME prices face downward pressure.