Impost To Help This Integrated Player

The current budget, despite not having made any changes in the duty structure, has given an indirect boost to the industry through the 8 per cent across-the-board increase in import duties which would further push up the landed cost. This augurs well for integrated players like Hindalco to maintain or increase the domestic prices in tandem with the changes in LME prices.

The LME prices of aluminium have fallen from $ 1600 levels to the current level of $ 1365 since the outbreak of the Asian crisis last year.

LME prices seems to have bottomed out at the current levels, and any further significant downtrend is ruled out. Hindalco, with perfect integration, will be the best beneficiary

The benefit arises from its level of integration right from bauxite mining to downstream, value added products. The downstream sector, already facing tough times, is heading for a shake out with duty levels on primary metal and downstream products unchanged at 20 per cent plus 5 per cent special duties.

Hindalco had already increased capacity of rolled products to 80,000 tpa from 45,000 tpa in 1997. During 1998, it added up 3300 tonne to the extrusion capacity, taking its total capacity to 13,300 tonne. In February, 1998, its 5000 tpa foil plant at Silvassa was commissioned. The value addition in extrusion is envisaged at Rs 25,000 per tonne while on foils, it is estimated at Rs 1-1.4 lakh. Thus, the product mix of Hindalco seems comfortably placed.

These expansions makes Hindalco comfortably placed, says Chetan Ayya, Analyst, Caspian Securities "The 8 per cent rise in duties across the board would substantially help Hindalco to counter the downtrend in international prices in both primary metal and downstream segments."

Expansions by other players are still in the planned stages, and slated to commence only by 2000-01. The donwstream manufacturers were expecting the budget to reduce the duty on primary metal by 5 per cent. Since no change has been made, this further adds to depletion of downstream profitability.

Most of the downstream capacities were set up in 1993 when duty on primary metal was 30 per cent while it was 75 per cent on downstream products.

Currently, duties on both are at 20 per cent which makes the non-integrated downstream industry out of line.

Hindalco, with its deep pockets and integration, is well poised to capitalise at the cost of downstream players.

A further boost comes from the power industry with tax holidays extended to power projects upto 2003. Power industry is one of the major consumers of aluminium followed by construction and transport.