Recycled aluminium demand surges 800 bps over 3 fiscals: CRISIL Research

Primary aluminium makers focus on exports and value-added products

Recycled aluminium has surged in aggregate consumption thanks to its pricing, said Crisil Research in its report.

The usage of primary aluminium logged a compound annual growth rate of 3.5-4 percent in the last three years through fiscal 2019, while that of recycled aluminium zoomed at a robust 17-18 percent.

As a result, the share of recycled aluminium in aggregate aluminium market in India stood at 34 percent as of fiscal 2019, up 800 basis points (bps) from 26 percent three years ago. This is in line with the global trend, though the proportion is much lower compared with developed economies.

Fuelling this growth is the better cost economics recycled aluminium offers, said the report. For instance, the ADC-12 alloy manufactured using recycled aluminium is 15-20 percent cheaper than that made with primary aluminium.

Also, there is healthy demand for non-ferrous castings from the automotive sector, which consumes 65 percent of recycled aluminium in India. Demand from the building and construction sector, which consumes 10-15 percent of overall recycled aluminium, has also increased with rising penetration of recycled extrusions, especially in window frames.

“Demand for recycled aluminium has outpaced primary aluminium demand by 2.3-2.4 times over the last five years, led by better cost-economics, especially in the price-sensitive automotive castings space. This, in turn, has led to a surge in scrap imports, which soared to 1.35 million tonne in fiscal 2019, up from 0.7 million tonne in fiscal 2014, due to limited availability of optimum quality of scrap in domestic market,” said Prasad Koparkar, senior director at CRISIL Research.

Higher share of imported scrap at 85-90 percent (as compared to domestic scrap) is largely on account of lack of efficient ecosystem in India for scrap collection, segregation, and processing facilities (such as scrap yards). India primarily imports domestic aluminum scrap requirement from Europe and West Asia.

As for domestic primary aluminium producers, these have been able to operate at healthy capacity utilisation levels despite the competition posed by aluminium scrap imports, as the surplus production has been exported, informed the report.

The share of exports in primary aluminium production increased to 52 percent in fiscal 2019 from 33 percent in fiscal 2015. In fiscal 2019, Asia (largely Malaysia and Korea) accounted for 47 percent of India’s primary aluminium exports, followed by Europe with 29 percent share.

In fiscal 2020, CRISIL estimates exports to be range-bound at around 1.9 MT over previous year.

Primary aluminium demand in the domestic market is also expected to be slow at 4-5 percent in current fiscal given tepid ordering from PGCIL (power is 55% of primary aluminium demand) and slowdown in automotive segment.

“Slower domestic demand, rising competition from recycled aluminium, downtrend in prices, and mounting uncertainty in global trade are key challenges for primary aluminium makers. However, softening cost structure will still enable a 50-100 bps improvement in their operating margins in fiscal 2020. To counter the threat, primary aluminium makers are venturing into the value added products space which should enable better margins,” Hetal Gandhi, director at CRISIL Research was quoted as saying.

Hindalco Industries, Vedanta Ltd and state-owned National Aluminium Company Limited are the primary aluminium producers in the country.