As per CNBC 19 - On Friday, January 3, NALCO Ltd. shares were the biggest losers on the Nifty Metal index. After rising more than 1% at its peak for the day, the Metal index itself concluded the day flat.
Vedanta's stock closed Friday's trading session up 2%, while NALCO's saw a decline of more than 4%. Vedanta's stock was up 3.5% at one time.
One element—alumina—is connected to the movement of both shares.
Despite the lack of a clear explanation, the February futures of alumina dropped 6% in the overnight market.
Naturally, there is a rise in supply, which is bringing things back to normal and, as a result, driving up prices following a sharp spike.
On a sequential basis, the average price of alumina was $150 more per tonne in the December quarter, at $700 per tonne.
Since the state-run business sells the product on the open market, NALCO is more of an alumina play.
Why, then, is a decline in the price of alumina bad for NALCO? The Alumina sector accounted for 40% of the company's Earnings Before Interest and Tax (EBIT).
However, why would Vedanta benefit from a decline in alumina prices? This is due to the fact that the open market provides 50% of the company's alumina needs. Thus, a decline in prices would result in decreased expenses for Vedanta, which would benefit the miner owned by Anil Agarwal.
On Thursday, Vedanta's shares ended 1.7% higher at ₹457.35, while NALCO's shares ended 4.3% lower at ₹207.2.