Import surge chokes top line of aluminium companies in Q2 of FY19

Overall domestic sales of top producers Hindalco, Vedanta and Nalco inched up only 3.56%; all three firms had their market share eroded

Aluminium companies floundered in domestic sales during the July-September quarter of this fiscal despite robust demand and firm production growth. A swarm of imports accentuated by the US-China trade war ate into the market share of the three primary aluminium producers -- Hindalco Industries, Vedanta Ltd and state run National Aluminium Company (Nalco) whose overall domestic sales during the quarter inched up only 3.56 per cent.

In Q2 of FY19, aluminium demand witnessed a spike of 16 per cent year-on-year (y-o-y) to 847,000 tonnes. Consumption of the white metal, too, grew at 14 per cent to 1.6 million tonnes (mt). But the domestic growth story was marred by spate of low cost imports of fake semis and wire rods from China and ASEAN (Association of South East Asian Nations) region. The woes of the domestic producers was magnified by scrap imports from US, denting primary metal sales. As per an industry source, fake semis imports from China zoomed  13 times during April-September to 66,000 tonnes.

Scrap imports in April-September grew 19 per cent y-o-y to 644,000 tonnes, posing a threat to the domestic aluminium manufacturers. Cost of aluminium smelting in the country is constantly on the rise fuelled by hike in coal prices and constrained supplies as coal is increasingly prioritized to meet the requirement of the power sector. For all producers, cost of aluminium making has breached $2000 per tonne- a price point at which most smelters across the world without backward linkages do not make money. Domestic producers are also facing pressure due to surge in metal making costs.
 

“The (aluminium) business is facing headwinds on account of an oversupplied domestic market due to continued surge in imports and rising input costs, particularly that of coal and furnace oil”, Satish Pai, managing director, Hindalco Industries said at the company's recent earnings conference call. Besides escalating input costs of coal and furnace oil and rising aluminium imports, Pai lists slowing China growth as one of key risks since it is leading to moderation in consumption growth for both aluminium and copper.

Between January and September of calendar 2018, global aluminium consumption growth was four per cent  y-o-y, slower than six per cent in the comparable period of 2017. Global consumption is deflating primarily on account of demand moderation in China. In China, aluminium consumption grew by only five per cent during January-September, down from nine per cent in the same period of calendar 2017. However, the recent policy stimulus, thrust on infrastructure and hike in VAT rebates by the Chinese government are likely to buoy its aluminium industry. So far, China's Shandong and Xinjiang provinces have recorded drop in aluminium production this year. Production in China is plateauing around the three mt a month mark. Globally, aluminium production growth is projected to be tepid in the range of one to two per cent in calendar 2018. Production is seen to be falling short of demand growth, creating a deficit of two mt.

Indian aluminium makers are looking to widen and diversify their export markets as imports continue unabated. The share of imports in the country's aluminium consumption has touched 60 per cent, unnerving the domestic players.