In-Focus

February 201532

ontinuous rise in import

Cof aluminium despite

being self-sufficient, has

narrowed gap with exports which

threatened India's competitive

edge in base metals with its

endowed mineral resources. With

i m p o r t e d r a w m a t e r i a l s ,

however, countries like Saudi

Arabia is strongly challenging

India's dominance in global

markets for aluminium exports.

Also, cheap imports have pushed

margins of India's three large

aluminium producers including

Hindalco Industries, Vedanta

and Nalco under tremendous

pressure.

Indian Aluminium -

Rising international trade at slower paceMetalworld Research Team

Falling production

India's total production of aluminium, according to reports by the Ministry of Mines, stood at 1.52 million tonnes for the financial year 2013-14 compared to 1.58 million tonnes in the previous year. After a marginal 3.72 per cent growth in 2013-14, aluminium production stood at 1202891 tonnes in the period between April – December 2014 as compared to 1136460 tonnes in the corresponding period last year. Nalco continued to cut in aluminium production to report at 237913 tonnes in the first nine months of the current financial year compared to 244006 tonnes in the same period last year. Balco also posted a steep decline in its output at 243422 tonnes between April – December 2014 as against 189971 tonnes in the same period last year. Sesa Sterlite, meanwhile, reported a stable aluminium production at 407244 tonnes versus 407903 tonnes.

Interestingly, aluminium prices hit their lowest in last two months of 2014,

Aluminium production (tonnes)

after poor industrial data from China, the world's biggest metals consumer, and due to further fail in oil prices. Growth in China's manufacturing sector slowed to a 18 month low in December, 2014. Uncertainties have also grown in European market due to political uncertainty in Greece. This has helped boost the US dollar, which has been near a two year high in comparison to Euro, making dollar priced metals costlier for European and other non U.S. investors. Concerns also grew that economic weakness in other parts of the world could soon hit the United States as well, which has so far performed well. It is also anticipated that US Federal Reserve will raise interest rates in the first half of January, 2015 despite the economic weakness abroad. This could push up the dollar further, and a stronger dollar thus will make metals prices in the US currency more expensive to buyers using other currencies.

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Rising import and anti-dumping duty

Despite being self-sufficient, India has witnessed a sharp increase in import of aluminium in the last few years. The product is imported from a number of countries, and primarily from Oman, China, South Korea, Iran and United Arab Emirates at a competitive price. Data compiled by the Directorate General of Commercial Intelligence and Statistics (DGCIS) showed India's import of aluminium and its products at 208496 tonnes in 2013-14, around 34 rise from 154449 tonnes in the previous year. A Press Information Bureau reported India's aluminium import at 97595.64 tonnes in 2011-12 versus 105784.37 tonnes in the previous year. The product is a basic form of cast aluminium and is made by the process of solidifying the liquid hot metal by pouring into a mould. The aim is to make the metal easy for handling and transportation.

Import of aluminium and its products is not new to India. According to analysts, India imported 141498.05 tonnes of aluminium and its products in 2009-10. U s e r s i n c l u d i n g a u t o m o t i v e manufacturers and others have been importing aluminium of specific grade for specialized applications.

Local manufacturers, however, registered complaints in March last year with the Ministry of Commerce for levying anti-dumping duty on aluminium imports to safeguard interest of local producers including Hindalco Industries, Vedanta and Nalco that contributes nearly 71 per cent of India's metal output.

The commerce ministry then started investigations which, in November 2014, rejected industry's claim.

Hindalco Industries, Sesa Sterlite and Bharat Aluminium Company (Balco) had urged the government to impose safeguard duty on imports of an aluminium product for four years to protect domestic producers. Safeguard duty is a WTO-compatible temporary measure that is brought in for a certain time-frame to avert any damage to a country's domestic industry from cheap imports. Acting on the complaint, the Directorate General of Safeguards (DGS) has initiated an investigation into imports of 'non-alloyed ingots of unwrought aluminium' – used in the automobile and machinery sector. These companies claimed that the

increased imports of the product have caused and are threatening to cause serious injury to the domestic producers. Production of the domestic industry has slightly declined in 2013-14 (annualised) to 551,086 MT as against the base year 2010-11 when it was 552,864 MT. The domestic industry suffered loss in sales, market share, caused by increased imports. Aluminum ingot exports to India from the UAE will not face any safeguard duty or compensation fees following the rejection of dumping charges, the UAE Ministry of Economy has announced late last year.

Growing exports

Consecutive years of below five per cent economic growth and 0.7 per cent contraction of the manufacturing sector last year ensured a 6.2 per cent fall in the country's primary aluminium use to 1.58 million tonnes (mt) during 2013-14. Even while India is to grow at 5.5 per cent in FY15, aluminium will likely again experience a fall in growth. The contraction came at a time when Vedanta and Hindalco are raising production by a significant amount. Government-owned National Aluminium Company (Nalco), exercising production discipline for the sake of profit improvement, is now engaged in reviewing whether more capacity use at this juncture will prove beneficial. A demand fall for two years in a row has led the Indian aluminium sector to sell the rising surplus abroad. Primary producers' exports climbed 142,322 tonnes to 487,081 tonnes in 2013-14. Exports had reached 523,802 tonnes till mid-December 2014.

Bauxite deposits

India has large resources of high grade bauxite deposits of the order of 3037 million tonnes (MT). The recoverable

reserves are placed at 2525 MT. The proved and probable reserves are 1218 MT, placing the country 5th in rank in the world, next only to Australia, Guinea, Brazil and Jamaica. Even at an anticipated consumption of 7 million tonne per year (tpa) of bauxite, these reserves are expected to last for over 350 years. Given the natural resource endowment, growing demand for aluminium and its alloys, economic opportunities and scope for exports, India can produce alumina at internationally competitive prices. Aluminium metal can also be produced competitively with the latest technology c o u p l e d w i t h c h e a p e r e n e r g y arrangements in India, or by toll smelting Alumina in low power cost aluminium smelters abroad. The greatest scope for value addition and employment lies in the development of down-stream aluminium end-products like extrusions, rolled products, fabrication and finished items. India can benefit by this value addition given the low energy requirements and labour intensity of down-stream industries. Aluminium has significant industrial and economic importance for India, as this is the one metal for which the country has abundant raw material. While bauxite reserves account for 7.5% of the world's total deposits, aluminium capacity is only 3% indicating the scope and need for new capacities to meet growing internal demand and for sizable exports on a long term basis. Demand for aluminium is expected to grow rapidly with increasing use in the construction, power transmission, transport and packaging sectors. It may be noted that due to the poor natural resource endowment of other non-ferrous metals like copper, lead, zinc, tin, etc., where the country is heavily dependent on imports, aluminium and value added exports could help in the overall export-import balance of non-ferrous metals. Alumina is produced from bauxite ore. About 1 tonne of alumina is produced from 3 tonnes of bauxite and about 1 tonne aluminium is produced from 2 tonne of Alumina.

Aluminium recycling

Supply of aluminum is in excess and any deficit can be imported at low rates of duty. Currently, the demand is stable while supply is in excess. Demand for aluminium is estimated to grow at 6%-8% per annum in view of the low per capita

In-Focus

consumption in India. Also, demand for the metal is expected to pick up as the scenario improves for user industries, like power, infrastructure and transportation. Large economies of scale, consequently, high capital cost are the entry barrier for new players in this industry. Most domestic players operate integrated plants. Bargaining power is limited in case of power purchase, as Government is the only supplier. However, increasing usage of captive power plants (CPP) will help to rationalize power costs to a certain extent in the long-term. Being a commodity, customers enjoy relatively high bargaining power, as prices are determined on demand and supply. Competition is primarily on quality and p r i c e , a s b e i n g a c o m m o d i t y, differentiation is difficult. However, the recent spate of consolidation has reduced the competitive pressure in the industry. Further, increasing value addition to aluminium products has helped some companies protect themselves from the high volatilities witnessed in this industry.

Currently, India does not have any organized mode of scrap collection. India

imported Rs 7500 crore worth of total scrap weighing 20.40 million tonnes in 2013-14. Of which, aluminium contributed 0.95 million tonnes worth Rs 1120 crore. The industry believes that metals recycling sector currently is at a nascent s tage. The industry is unorganized, and large volumes of unaccountable / non segregated scrap is inadequately utilized. As a result there is more burden on primary production which depletes natural resources. The indus t ry, t he re fo re , u rged the government to protect the interest of local players by recyclers urged the government to roll back 5 per cent import duty on aluminium scrap.

“Recycling sector must be supported and promoted so that end of life automotive vehicles/white goods/revert scrap are disposed off in a safe manner and are utilized back into the ecosystem. This would be a tremendous boon to the Indian economy,” said Iqbal Nathani, pres ident of Meta ls Recycl ing Association of India (MRAI).

Nalco holds key in international aluminium trade

Nalco's bauxite mines achieved the highest ever production since inception with transportation of 6.29 million tonnes in 2013-14 against previous best of 5.42 million tonnes achieved last year. Similarly, the company's alumina refinery plant at Damanjodi also achieved the highest ever production since inception with alumina hydrate production of 1.93 million tonnes against previous best of 1.80 million tonnes achieved last year. The aluminium smelter plant at Angul produced 3.16 lakh tonnes of cast metal against previous best of 4.44 lakh tonnes achieved in the previous year.

The total metal sale during 2013-14 was reported at 3.20 lakh tonnes compared to 4.03 lakh tonnes sold during 2012-13. Total metal sales consist of domestic sale of 2.19 lakh tonnes and export sale of 1.01 lakh tonnes during 2013-14. The total metal sales during the year were lower due to production curtailment at smelter plant. However, the metal inventory for 2013-14 was brought down to 2,149 tonnes from a level of 5,594 tonnes in 2012-13.

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In-Focus