CLSA’s latest India materials report argues that a prolonged Middle East conflict will have an “accentuated impact on energy-linked commodities and transportation costs, driving up the cost curve and tightening demand-supply balance,” drawing a direct parallel with Europe’s 2022 energy crisis when smelter shutdowns proved slow and expensive to reverse.
Aluminium stands out as the most exposed metal because the Middle East controls around 6.9mt of smelting capacity, or roughly 9% of global primary aluminium capacity, and about 4.5mt of alumina refining capacity, much of which is export-oriented. The report notes that one 0.6mt smelter has already stopped production and warns that “shutdown and restart of an aluminium smelter is a long and expensive process”, implying that further curtailments or gas-supply disruptions could quickly tighten an already “tight global balance.”
In that backdrop, CLSA believes Indian base metal producers with backward integration and domestic sourcing will be relative winners, as they enjoy better spreads from higher global prices without a commensurate spike in imported energy or feedstock costs.
“We believe Indian base metal stocks could be a key beneficiary of a higher commodity price on backward integration and domestic sourcing, leading to better spreads,” the brokerage writes, highlighting Vedanta’s diversified exposure to aluminium, zinc and oil as a strategic advantage in a conflict-driven commodities upcycle. Its mark-to-market analysis implies a fair value of Rs 1,030 for Vedanta versus a base-case Rs 835, with the war-led aluminium price lift translating into 23–33% higher aluminium EBITDA per tonne for FY27–28 and an 18–22% upgrade to consolidated EBITDA.
“Given its exposure to multiple commodities, such as zinc, aluminium and oil, Vedanta is well placed to benefit from the current commodities upcycle,” CLSA adds, while stressing that walking the talk on the capital allocation policy and timely execution of expansion projects are key for a rerating.
Hindalco, another key aluminium play, also features among beneficiaries but with capped upside because of heavy hedging and European exposure. The report points out that 64% of its aluminium exposure for 4QFY26 and 21% for FY27 is already hedged, while higher gas prices and availability issues could hit its European operations, and any disruption to Middle East scrap exports could compress spreads.Even after marking its model to current spot prices, CLSA sees Hindalco’s implied valuation rising only about 9%, from Rs 1,035 to Rs 1,127, compared with a 24% uplift for Vedanta.
The brokerage still expects Hindalco’s ongoing US$10bn capex across Novelis and India to structurally improve its profitability profile and help double EBITDA over FY25–30, but cautions that escalating capex and time overruns remain an overhang in a more volatile macro environment.
For steel, the war’s impact is more nuanced, feeding into both input costs and finished steel pricing via freight, coking coal trade flows and the broader risk bid in commodities.
CLSA’s scenario work shows the largest mark-to-market uplift in earnings for Jindal Steel at current steel and coking coal benchmarks, though it expects prices to “soften around monsoon,” tempering the sustainability of elevated spreads.
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The house argues that safeguard duty in India, a likely demand uptick and the EU’s Carbon Border Adjustment Mechanism (CBAM), along with production and import restrictions in China, could “drive a floor in steel prices,” supporting higher valuation multiples for the sector versus historical medians despite geopolitical noise.
Within its coverage, Tata Steel is positioned as a key gainer from any steel spread expansion triggered by higher global prices and tighter trade flows, thanks to its high iron ore integration that cushions raw material shocks.
“Tata Steel is best placed to benefit in an improving steel spread scenario given its high iron ore integration,” CLSA writes, noting that domestic capacity addition provides visibility on medium-term growth even as European profitability and the capex required to convert UK assets to EAF-based production linger as overhangs.
The broker values Tata Steel’s India business at 7.5x FY28 EV/Ebitda and its European operations at 5x, “higher than its historical median multiple,” a signal that investors may be willing to ascribe a geopolitical and decarbonisation option value to the stock if China stimulus and CBAM support prices.
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The war also reshapes the coking coal map, with CLSA highlighting that India “is likely to be a leading player in the global coking coal trade” and that Mongolia’s importance as a key exporter has risen. That shift could amplify India’s leverage in seaborne coal markets even as it raises concentration risks for blast furnace–heavy producers like JSW Steel and Jindal Steel, where lower iron ore integration and aggressive capex keep debt elevated and earnings more volatile. JSW’s target valuation of 9x FY28 EV/Ebitda, above its historical multiple, and Jindal’s 8x FY28 EV/Ebitda already “more than factor in strong volume growth outlook,” leaving limited room for rerating unless steel prices stay higher for longer than CLSA’s base case.
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Vedanta, with its aluminium‑zinc‑oil mix, and Tata Steel, with its iron ore-backed steel franchise, emerge as the preferred conflict-era bets in a sector that the brokerage warns has become a “blind battlefield” where energy, logistics and geopolitics now matter as much as demand and capacity additions.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
