Charting A New Course

The biggest growth has been world wide in two end users, transportation and beverage cans. During the 80s aluminium beverage cans conquered the US soft-drink market. They began to take on the Indian market in the middle of the nineties.

As the industry heads into the next millennium, it believes the biggest growth will almost certainly come from the automotive market. It has already been proved that the light aluminium transport vehicles consume less fuel, decrease wear and tare, increase life and require minimal maintenance.

Since India began liberalising trade six years ago, aluminium was chosen as the first important metal sector to be exposed to global competition. Much to every ones surprise, the domestic industry has adjusted to this increased competition with relative ease. " Since the liberalisation, India's aluminium sector has made rapid strides and barring a few aberrations, the pace of growth has been excellent. I see growth accelerating as aluminium finds its way into more and application," says Mr. A. K. Agarwala, President, Hindalco Industries Limited.

 

It is very well known that aluminium industry has always faced problems in connection with supply of its main raw materials like bauxite, power and carbonaceous materials. All the major producers have faced problems of uninterrupted power supply, alongwith high cost of power several times. Even some companies had been closed down due to no availability of power. The companies also have faced lack of availability of good quality CP coke and Pitch. To counter the power supply problem many companies are now in the process of building its own captive power plants.

Till 1989 the selling price and distribution of aluminium was controlled by the government. However, after decontrol in 1989 the aluminium producers exercised their judgement for selling, distribution and pricing of aluminium in the country. Since domestic prices are indexed to the London Metal Exchange (LME) aluminium quotes, manufacturers often find their cash flows disrupted due to sudden fall in international prices of the commodity. " after introduction of liberalised import, users started import of metal when international price was low and utilising the domestic metal when the international prices were high in the international market, which affected the domestic primary producers adversely," points out Mr. S.N Johri, Hon. President of the Aluminium Association of India.

Even though aluminium consumption in India has been increasing at a compounded annual rate of six per cent, aluminium penetration in India is abysmal. Aluminium that is known as the common man's metal is posed to reach new standards, both in production levels and technological up-gradation by the turn of the next century. The government decision to decrease the import tariffs have been adjusted to very well, quite unlike other metal industry in India.

But the industry seems to be apprehensive due to subdued aluminium prices on the London Metal Exchange (LME). The ten per cent decline in LME prices last year caused landed prices to dip below domestic prices and forced Indian producer to reduce average selling prices by five to six per cent, causing unexpected losses. The aluminium industry, after a healthy growth of 31 per cent in 1994-95 and 22.3 per cent in 1995-96 saw its sales turn over drop by 2.4 per cent during last year. Consequently three aluminium majors had also shown poor resulted last year. Their profits fell by 11.6 per cent from an healthy 80 per cent in 1994-95 and 53 per cent in 1996-97. The industry is also plagued by high inventory levels as over 45,000 tonnes from the previous years 12,000 - 14,000 tonnes of aluminium have been imported.

In 1995-96, the Rs.5,000 crore Indian aluminium industry produced 5.15 lakh tonnes of which domestic consumption constituted 4.95 lakh tonnes and exports 75,000 tonnes, leading to shortfall 55,000 tonnes. The deficit in supply is expected to grow to 1.60 lakh tonnes by the turn of the century. Though India can boast of 12 per cent of global bauxite deposits, its production hardly accounts for 2 per cent of the world aluminium production. Besides domestic per capita consumption of metal remains at only one kg against 30 kg in developed countries. During the period, domestic aluminium prices fell from Rs.70,000 to around Rs.60,000 per tonne. Domestic users took advance of imports which were cheap by Rs. 35,000 per tonne in November and December 1996, and imported 45,000 tonnes during the period. Apart from the low per capita consumption, the strong potential for aluminium is further underscored by the low usage of aluminium metal in India, due to fewer commercially known application.

Despite the abundant availability of high quality bauxite and low costs, India's aluminium production remains stagnant at two per cent of global output. Industry experts attribute the slow growth of the industry to the high cost of greenfield melters and the poor operational performance of State Electricity Boards. A sharp fall in aluminium prices, grim power situation, rising inventory levels and high cost of borrowing worsened the situation further for domestic aluminium producers. Hindalco sales fell by 7.6 per cent to Rs. 1157 crore on poor first half results. Indal's 2.5 per cent decline in sales turn over at Rs. 1158 crore was attributed to the closure of the company's melter in Kerala due to power problems.

In 1995-96, the Rs. 5,000 crore Indian aluminium industry produced 5.16 lakh tonnes, of which domestic consumption constituted 4.95 lakh tonnes and export 75,000 tonnes, leading to a shortfall of 55,000 tonnes. This deficit in supply is expected to grow to 1.60 lakh tonnes by the turn of the century. Though India can boast of 12 per cent of global deposits, its production hardly accounts for 2 per cent of the world aluminium production. Besides domestic per capita consumption of aluminium is only one kilogram against 30 kilogram in developed countries.

The long term objective of India's policy towards aluminium is not only to meet the domestic demand but to sell the metal to other Asian countries too. All the aluminium majors are planning for capacity increase over the next few years. Nalco has plans for future growth worth Rs. 3,964 crore. It has proposed an expansion of its bauxite mines capacity from 24 lakh tonnes to 48 lakh tonnes and aluminium refinery from 8 lakhs to 15.75 lakh tonnes at an investment of Rs. 1,665 crore. Hindalco plans to modernise and expand its capacities at a capital outlay of Rs. 1800 crore. The company has already spent Rs. 540 crore and proposes to spend Rs. 527 crore this year. In 1998 Hindalco will spend Rs. 612 crore and balance Rs. 121 crore in 1999. It is also setting up a 5,000 tpa aluminium foil plant at Silvassa. Hindalco also proposes to set up a greenfield 2.5 lakh tonnes aluminium smelting project in the near future. Indal plans to spend Rs. 160 crore in the current year to set up a caster for coils at the

Hirakund plant and up-gradation of mills at Taloja and Belur. Industry sources point out that the Indian aluminium sector, which owns high quality bauxite reserves, has established beyond point and will be one of the important souring point for alumina worldwide.

The industry sources point out that the till 1990, the highly regularised aluminium sector till a few years back had to produce 50 per cent of its aluminium as a power grade, which led to limited end users of the metal in about 300 applications against over 25,00 known applications abroad. They also add that even now electrical grades account for 34 per cent of total aluminium production in the country.

Indian aluminium majors like Hindalco and Nalco is considered to be the lowest cost aluminium producers in the world. According to a BZW report, Hindalco and Nalco average cost of production are $ 1,034 per tonne against a western world average of $1,230 per tonne and an eastern block average of $ 1, 183 per tonne.

According to Anthony Bard & Associates, primary aluminium consumption is increasing 1.5 times faster that industrial production. The aluminium scenario at present shows that the supply and the demand of metal is more or less balancing each other. But the demand is expected to grow faster due to increased use of the metal in new applications. " Demand is likely to grow at faster rate that the industrial production atleast till 1999, because the shut down capacity which can be revived is not very large and rate of commissioning of new smelter capacity is also very slow," says Mr. Johri.

The shifts in the consumption pattern to those of western countries is slowly becoming evident in India also. Use aluminium in electrical sector, which stands at 34 per cent is expected to come down to 25 per cent in the year 2002-03 while transport sector is expected to show downward movement of one per cent from the current level of 22 per cent to 21 per cent in 2002-03.

Industry sources are upbeat about the years to come. " As such Indian aluminium industry has a bright future in the coming years. In addition to this, recently RBI has allowed Indian companies to hedge on commodities exchanges like LME and Indian aluminium industry must also take advantage of the same," says Mr. Johri. " There also exists ample opportunities for increasing aluminium consumption in the country considering growing need and purchasing power of the people at large," he adds further.