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Aluminium makers need to be cost competitive, say analysts

Falling metal prices have eroded their competitive edge, forcing them to keep half their capacities idle

Jayajit Dash  |  Bhubaneswar 

Aluminium makers need to be cost competitive, say analysts

Hurt by spate of cheaper imports and plummeting (London Metal Exchange) prices, domestic aluminium makers need to focus on cost competitiveness in the long run to compete against their global counterparts, analysts.

Aluminium producers like National Aluminium Company (Nalco), Industries and have been pressing for hike in import duty to 10 per cent (from five per cent now) to counter the threat from rising imports from China and West Asia. Also, falling metal prices have eroded their competitive edge, forcing them to keep half of their capacities idle.

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"Increase in import duty can provide an immediate relief to Indian aluminium producers but in the longer run, cost competitiveness is important. Two key input costs are energy cost and bauxite cost. With all key minerals going to auction route, costs are expected to increase combined with the new levy in the form of (District Mineral Foundation) . Thus, it is important to find ways to reduce costs to make Indian players competitive", said Pukhraj Sethiya, associate director, energy (& mining), PricewaterhouseCoopers (PwC).

He, however, ruled out the risk of aluminium investments turning into (non-performing assets).

"Aluminium industry like other capital industries are cyclic in nature and it would be early to say that aluminium investments are at risk of turning NPAs", he said.

The domestic aluminium manufacturers have invested around Rs 1.2 lakh crore and as per the estimates of the (AAI), these investments run the risk of turning into if the prevailing imports continue unabated.

In case of steel industry, imports constitute only 12 per cent of total domestic consumption whereas aluminium imports accounted for 56 per cent of the consumption in 2014-15. While the government has already announced duty protection measures for the steel industry by raising basic customs duty on steel products, similar steps are wanting for the aluminium producers, the AAI rued.

"The aluminium sector doesn't have much option other than to hope for government action with regard to higher import duty.

They will also try to cut high cost aluminium making. However, capacity cut would be limited due to debt commitment", said Giriraj Daga, portfolio manager at Mumbai-based SKS Capital & Research Pvt Ltd.

AAI on last Sunday, met Union finance minister Arun Jaitley to apprise him on the crisis faced by the domestic manufacturers due to rising imports.

"In the April-August period of this fiscal, imports are more or less at the same level compared to the same period of last fiscal though we feel that imports may be somewhat higher by the end of this fiscal. Spot prices of alumina have touched $270 a tonne in the global market. We are currently importing nearly one million tonne of alumina per annum but are trying to cut imports by firming up deals with domestic suppliers", said a senor executive at

Aluminium imports rose from 0.88 million tonne (mt) in 2010-11 to 1.56 mt in 2014-15, registering a CAGR (compounded annual growth rate) of 15 per cent. In the same period, the share of domestic producers fell from 60 per cent to 44 per cent.

Together, Bharat Aluminium Company (Balco), Nalco, and have an installed capacity of 4.21 mt. But actual production in last fiscal was 2.26 mt, meaning a capacity utilisation of only 49 per cent.

Globally, cost of aluminium production was on the decline on the back of weaker local currencies, lower prices and electricity tariff in China and cheaper gas based power generation in West Asia. In contrast, the domestic aluminium makers were in the soup as higher and logistics cost were eroding their operational viability.

First Published: Tue, September 15 2015. 17:56 IST
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