aluminium january 2015

Industry Comment Aluminium

www.imacs.in 1

ICRA Management Consulting Services Limited

Ind

ustry

Co

mm

en

t

IMaC

S R

ese

arc

h &

An

aly

tics

THE INDIAN ALUMINIUM INDUSTRY

January 2015

www.imacs.in

http://www.imacs.in/


www.imacs.in 2

Contacts:

Vineet Nigam Principal

+91 120 4515831

Disclaimer

All information contained in this document has been obtained by IMaCS from sources believed by

it to be accurate and reliable. Although reasonable care has been taken to ensure that the

information herein is true, such information is provided ‘as is’ without any warranty of any kind,

and IMaCS in particular, makes no representation or warranty, express or implied, as to the

accuracy, timeliness or completeness of any such information. All information contained herein

must be construed solely as statements of opinion, and IMaCS shall not be liable for any losses

incurred by users from any use of this document or its contents in any manner. Opinions

expressed in this document are not the opinions of our holding company, ICRA Limited (ICRA),

and should not be construed as any indication of credit rating or grading of ICRA for any

instruments that have been issued or are to be issued by any entity.


www.imacs.in 3

TABLE OF CONTENTS

HIGHLIGHTS .......................................................................................................................................... 4

OVERVIEW ............................................................................................................................................. 5

INDUSTRY STRUCTURE ....................................................................................................................... 7

USER SEGMENTS .................................................................................................................................. 8

END-USER SEGMENTS ........................................................................................................................................................ 8 THREAT OF SUBSTITUTES .................................................................................................................................................. 12

DEMAND-SUPPLY TRENDS AND PROSPECTS ............................................................................... 13

WORLD PRODUCTION ....................................................................................................................................................... 13 WORLD CONSUMPTION ................................................................................................................................................... 24 INDIA’S ALUMINIUM CONSUMPTION .............................................................................................................................. 30

DOMESTIC SUPPLY CHARACTERISTICS .......................................................................................... 33

PRIMARY PRODUCERS ....................................................................................................................................................... 34 SECONDARY PRODUCERS ................................................................................................................................................. 36 ALUMINIUM RECYCLING ................................................................................................................................................... 37 CAPACITY EXPANSIONS ..................................................................................................................................................... 38

PRICES AND DUTIES .......................................................................................................................... 43

PRICE TRENDS AND PROSPECTS....................................................................................................................................... 43 DUTY STRUCTURE .............................................................................................................................................................. 51

FOREIGN TRADE ................................................................................................................................. 53

IMPORTS ............................................................................................................................................................................. 53 EXPORTS ............................................................................................................................................................................. 54

MAJOR COSTS .................................................................................................................................... 55

BAUXITE .............................................................................................................................................................................. 56 ALUMINA ............................................................................................................................................................................ 61 POWER ................................................................................................................................................................................ 62 OTHER CONSUMMABLES .................................................................................................................................................. 71

FINANCIAL PERFORMANCE .............................................................................................................. 72

OUTLOOK ............................................................................................................................................ 74


www.imacs.in 4

HIGHLIGHTS

Consumption Trends and Growth: World primary aluminium consumption aggregated 49

million tonnes (mt) in 2014, making aluminium the world’s second most used metal, after iron.

Over 2012 to 2014, world aluminium consumption grew by an estimated compounded average

growth rate (CAGR) of 4.6%.

Sectoral Usage: Globally, the use of aluminium by major sectors stands at building and

construction (31% of demand during 2013), transportation (25%), electrical supplies (13%),

packaging (12%), consumer products (8%), machinery and equipment (7%), and others (4%).

Electrical applications continue to be the largest end-use sector in India, accounting for

approximately 48% of India’s aluminium consumption as a result of the continuing drive to

provide electricity throughout the country. Transport is also a major consumer, contributing

approximately 15-17% of demand.

Domestic Consumption Growth and Outlook: India’s aluminium demand declined 9% in

2013 and 6% in 2014 because of lower domestic production, and weakness in electrical and

construction sector investments. Demand is expected to increase 8-9% in 2015-16. With the

uses of aluminium increasing, given its versatility, the demand potential is likely to increase

further.

Per Capita Growth and Outlook: Although India’s annual per capita aluminium consumption

has increased from 0.6 kg in 1996 to 1.1 kg in 2014, it is around 7% of China’s per capita

consumption of 17.3 kg. India’s per capita consumption is unlikely to increase at the same rate

as China because of lower share of industrial sector in India’s gross domestic product (GDP),

and lower proportion of manufactured products in India’s merchandise exports.

Domestic Capacity Additions: India’s primary aluminium production capacity is expected to

increase from 1.8 million tonnes per annum (mtpa) at present to 4.7 mtpa by end-FY2017, with

much of the forecast expansion in capacity and production targeted for export markets.

Alumina production capacity is forecast to increase by 8.7 mtpa to 13.3 mtpa, with around 4

mtpa of capacity surplus to domestic requirements.

Price Outlook: In 2015, world aluminium prices are forecast to average around $1,900/tonne

(t), representing an average annual increase of 2-5%. Aluminium production growth is forecast

to outpace consumption and result in stocks increasing to 7.5 weeks of consumption in 2015.

While high input costs are likely to support higher prices in 2015, the abundance of spare

capacity in China that can respond quickly to higher prices will moderate any price recovery.

Most of the growth in aluminium consumption will come from emerging economies. Despite

recent production cuts, new smelter capacity against the backdrop of weak demand could

cause prices to remain depressed. While the US, China and India are expected to drive

aluminium demand in 2015, consumption in Europe is forecast to stagnate. Domestic prices

would continue to remain linked with world prices, and price changes could be determined by

exchange rate fluctuations.


www.imacs.in 5

OVERVIEW

Aluminium is a non-ferrous metal that also include copper and a number of other materials (such

as zinc, lead, and cadmium). Aluminium is an abundant (7 to 10% by weight of the earth’s crust),

slightly blue-white metal of high strength-to-weight ratio. Unalloyed aluminium has a melting

point is 658.7°C, and boiling point of 2,494°C, and its specific gravity is 2.7, roughly 35% of iron

and 30% that of copper. It is nonmagnetic and has high thermal and electrical conductivity.

Aluminium is resistant to corrosion and chemical attack in many environments at normal

temperatures largely due to the very thin film of aluminium oxide that quickly forms on surfaces

exposed to the atmosphere. Aluminium is highly malleable in the pure form as well as in many

alloyed versions.

Although aluminium is the third most abundant material in the Earth's crust after oxygen and

silicon, it is a comparatively new industrial metal. This metal was first prepared in Denmark in 1825

by the reduction of aluminium chloride by potassium at high temperatures. The aluminium so

produced sold for $158/lb. (pound) owing to the high cost of potassium and to the expense

involved in obtaining dry aluminium chloride. Substitution of the cheaper metal sodium for

potassium lowered costs and prices, and subsequent improvements in methods for the production

of sodium made possible even lower costs of $5-6/lb. Even so, these improved methods resulted in

a total production of less than 100 lb. of aluminium per annum. Aluminium has been produced in

commercial quantities only since 1886 when Charles Martin Hall (in the US) and Paul-Louis-

Toussaint Héroult (in France) independently discovered how to produce aluminium through

electrolysis. In 1900, annual output of aluminium was only 7,300 tonnes. By 2014, annual world

production had reached 48.3 million tonnes (mt), making aluminium the world’s second most used

metal (after steel).

Bauxite ore is the primary raw material in the production of aluminium. Bauxite is a non-crystalline,

earthy-white to reddish mineral, theoretically containing 74% alumina (Al2O

3). It is the most

important ore of aluminium, but is also used for making aluminium oxide abrasives, for

refractories, white cement, and decolorising and filtering. Around 6 tonnes (t) of bauxite are

required to produce 1 t of aluminium. Approximately 95% of the world’s bauxite production is

processed into aluminium. Bauxites are typically classified according to their intended commercial

application: metallurgical, abrasive, cement, chemical and refractory. Bauxite is graded on the

alumina content. High-grade bauxite or Grade A contains a minimum of 55% alumina and a

maximum of 8% silica. Grade B contains a minimum of 50% alumina with a silica content ranging

from 8 to 16%. Chemical grades should have less than 2.5% iron oxide.

Aluminium oxide also known as alumina, is the main component of bauxite. Bauxite is refined into

alumina using the Bayer process, which is based on the reaction of the ore with sodium hydroxide.

The Bayer process was invented in 1888 by the Austrian chemist Karl Bayer. The process began to

gain importance in metallurgy together with the invention of the electrolytic aluminium process

invented in 1886. At present, the Bayer process is virtually unchanged and it produces nearly all the

world's alumina supply as an intermediate in primary aluminium production.


www.imacs.in 6

There are two main types of alumina (bauxite) ores used as the primary sources for aluminium

metal and aluminium chemicals: aluminium hydroxide (gibbsite) and a mixed aluminium oxide

hydroxide (boehmite). Thus, bauxite is a term for a family of ores rather than a substance of one

definite composition. Aluminium production can be split into primary aluminium production and

recycling. In primary aluminium production, alumina is dissolved in a molten liquid cryolite solution

(at around 1,000oC) in large steel furnaces (pots) lined with refractory bricks and containing carbon

cathodes and anodes. These furnaces become electric cells when an electric current is passed

through the cryolite from a carbon anode (positive electrode) to a carbon cathode (negative

electrode).The electrolytic reaction reduces alumina to molten aluminium. The molten aluminium is

transferred to holding furnaces and then poured directly into moulds to produce foundry ingots or

further refined to form fabricating ingots. The production of 1 t of aluminium requires about 1.95-2

t of alumina and 6 t of bauxite.

As compared with its substitutes, aluminium weighs about one-third as much as steel or copper.

Aluminium is used when some or all of the following properties are required: strength with light

weight, corrosion resistance, nontoxicity, electrical conductivity, and easy machinability or

formability. Over the past few decades, aluminium, with its diverse applications, has established

itself as a `wonder metal’. It is light, ductile, a good conductor of heat and electricity, non-

magnetic, non-toxic and decorative. Being malleable, it can be alloyed with other metals. The metal

has the potential to substitute other conventionally used materials like steel in many applications.

Primary aluminium is processed further into bars, rods, billets, plates, sheets, foils, etc. which are

used in a variety of products such as air conditioners, refrigerators, aircraft (structures and engines),

automotives (body parts and engines), bridges, food containers, drink cans, cooking and packaging

foils, window and door frames for buildings and electric cables. Worldwide, aluminium is used in

various sectors, prominent among which are building and construction (31% of demand during

2014), transportation (25%), electrical supplies (14%), packaging (12%), consumer products (8%),

machinery and equipment (7%), and others (4%). Its main markets are China, which represented

49% of worldwide demand in 2014, followed by US (10%), Germany (4.4%), Japan (4.2%), and India

(3%).

The main primary producers of aluminium are located in China, Russian Federation, North America,

Latin America, Western Europe, and Australia. Japan has phased out its primary aluminium

production over the last thirty years and now imports most of its requirements from Australia. Over

the last two decades, the global production pattern for aluminium has undergone extensive

regional changes, with a shift in production from developed to emerging economies. China is now

the world’s largest aluminium producer, with production of 24.5 mt in 2014, accounting for 50% of

global production. Since 2004, China has also become the world’s largest consumer of aluminium.

Most of the recent growth in the aluminium industry has emerged from the developing countries

such as China, India, and Brazil.


www.imacs.in 7

INDUSTRY STRUCTURE

India is an important player in the aluminium sector, especially because of its abundant bauxite

reserves. India had bauxite resources1 of 3.48 billion tonnes (bt) as of April 1, 2010. Out of this,

around 84% (2.92 bt) are of metallurgical grade. World bauxite resources are estimated to be 55 to

75 bt, located in Africa (32%), Oceania (23%), South America and the Caribbean (21%), and Asia

(18%). World bauxite reserves are presently estimated at 28 bt.

India entered the global aluminium industry in 1943 following the establishment of Indian

Aluminium Company Limited (Indal). At present, the domestic aluminium industry can be divided

into two broad categories:

Primary metal producers processing bauxite into aluminium ingots, billets or properzi rods.

Secondary fabrication units processing aluminium into rolled products, foils, sheets or

extrusions.

Primary aluminium can be sold in the form of ingots, billets and slabs. Given that production of

aluminium (the metal) is a more capital-intensive activity than fabrication, there are just five large

primary producers in India, as against several small downstream manufacturers. The five producers

are Nalco, Bharat Aluminium Company Ltd. (Balco), Hindalco Industries Ltd. (Hindalco), Madras

Aluminium Company Ltd. (Malco), and Vedanta Aluminium Ltd. (VAL). As of end-FY2013, these five

players presently had an installed capacity of 5.3 million tonnes per annum (mtpa) of alumina or

aluminium oxide (the main component of bauxite), and 1.7 mtpa of primary aluminium. Installed

capacity and production increased significantly during FY2009 because of setting up of a new

Greenfield project by VAL. Although production has continued to increase during FY2010-12,

installed capacity declined in FY2010-11 because of cessation of operations at Balco’s 100 ktpa

aluminium smelter at Korba. In response to recent global economic conditions and a decline in

commodity prices, starting in February 2009, Balco suspended part of its operations at Korba.

Operations at this aluminium smelter ceased on June 5, 2009.

Since primary players produce aluminium at much lower costs vis-à-vis the landed cost of

imported aluminium that is used by most secondary players, the margins of primary producers

increase if they undertake secondary processing themselves. The primary industry has thus started

integrating downwards.

The secondary rollers and extruders in the Indian aluminium industry either purchase the primary

metal (billets and blooms) from domestic producers or import the same and process the metal at

their own fabrication plants into semi- or fully -fabricated products.

1 Resources are defined as concentration of naturally occurring solid, liquid, or gaseous material in or on the

Earth’s crust in such form and amount that economic extraction of a commodity from the concentration is

currently or potentially feasible.


www.imacs.in 8

USER SEGMENTS

End-User Segments

The main end-users of aluminium are the automotive/transportation, building/construction,

electrical, packaging, and consumer durables sectors. The main applications of the metal in these

sectors are presented below:

Main Applications of Aluminium

Sector Applications

Automotives Panelling, flooring, windows, crankcases, cylinder blocks, radiators, wheel rims, car

bodies and frames, etc.

Aviation Internal fittings such as seatings, cylinder blocks

Electrical Overhead lines, electrical energy distribution and transport cables, energy cables for

industrial use, conductors, extrusions, foil wraps for cables

Packaging Cans, containers, collapsible tubes, and foils & closures for food, tobacco and

pharmaceutical products

Consumer Durables White goods, fans, coolers

Construction Roofing, window frames and building hardware

While globally, the transportation and construction sectors are the major end-users of aluminium,

in India, the bulk of the demand is accounted for by the electrical sector, followed by automotives

and building/construction.

End-Use Pattern of Aluminium Usage

The anomaly can be attributed largely to the Government regulations that were in force till as late

as 1991. According to the Aluminium Control Order, 1970, fifty percent of the total aluminium

metal output had to be of electrical grade. However, with the rescinding of controls in 1991 and

Electrical

48%

Transport

16%

Constn.

13%

Packaging

4%

Machinery

7%

Others

12%

India

Constn.

31% Transport

25%

Electrical

13%

Packaging

12%

Consumer

Goods

8%

Machinery

7%

Others

4%

World


www.imacs.in 9

the subsequent growth of the automotive and construction sectors during the 1990s, the share of

demand from the electrical sector grew at a sluggish pace. The sector-wise aluminium

consumption trends in India are presented in Table below:

Sector-wise Consumption of Aluminium in India

Percent of total

Sectors 1970-71 1980-81 1991-92 1995-96 1999-00 2012-13

Electrical 48 52 37 34 35 48

Automotives/Transport 8 11 21 22 17 15

Building/Construction 2 6 7 8 10 13

Packaging 8 6 8 11 10 4

Machinery 6 6 6 8 6 7

Others 28 19 21 17 22 13

Total 100 100 100 100 100 100

Electrical applications continue to be the largest end-use sector in India, accounting for

approximately 48% of India’s aluminium consumption as a result of the continuing drive to provide

electricity throughout the country. Transport is also a major consumer, contributing approximately

15-17% of demand.

Electrical Sector

In the power sector, most long distance overhead transmission and distribution lines are made of

aluminium. Aluminium has high thermal and electrical conductivity—in order of electrical

conductivity, the best four elements are silver, copper, gold, and aluminium, respectively. The

electrical sector has traditionally accounted for bulk of the demand for aluminium in India, owing

primarily to the Aluminium Control Order that was in place till 1991. Around 80% of the aluminium

demand emanating from the power sector is accounted for by bare conductors used for the

transmission and distribution of electricity. Since 1984-85, there has been growing use of all

aluminium alloy conductors (AAAC), which have better structural and thermal properties, and can

be made to different strength/conductivity requirements for transmission at different voltages,

thus leading to lower losses. Aluminium is also used in insulated and underground cables laid in

large populated urban areas and in reserved forests (to avoid deforestation). In addition, the metal

finds application in electrical devices such as transformers and other coil windings, which use paper

insulated or enamelled aluminium wires and stripes.

Automotive Sector

In the transportation sector, aluminium makes a key contribution to fuel-efficient engines in cars

and trucks as well as to high speed rail and sea travel. By reducing the vehicles weight, it cuts down

on fuel consumption and emissions without compromising the size or the safety of the vehicles.


www.imacs.in 10

World—Sector-wise Consumption of Aluminium

Percent of total

Sectors 2008 2009 2010 2011 2012

Building and Construction 26.2% 28.0% 28.5% 29.8% 30.3%

Transport 25.6% 23.8% 26.3% 25.2% 25.1%

Electrical 12.8% 14.6% 13.6% 13.6% 13.5%

Packaging 15.4% 14.6% 13.1% 12.5% 12.3%

Consumer Goods 7.1% 7.1% 7.5% 7.7% 7.6%

Machinery & Equipment 8.1% 7.5% 7.0% 7.3% 7.1%

Others 4.8% 4.4% 4.0% 4.0% 3.9%

Total 100% 100% 100% 100% 100%

At present, steel is currently the main automotive material. Over the past decade, steel made up an

average of 55% of the weight of a fully fuelled car without cargo or passengers. Most of the

remaining weight is accounted for by iron (10%), aluminium (6-10%), and plastics.

Globally, aluminium has the potential of achieving greater usage in the automotive sector because

of its high strength-to-weight ratio, which leads to better fuel efficiency. The extensive use of

aluminium can result in a weight reduction of up to 15-17%. Besides, in addition to having light

weight, aluminium space frames have shown better crash resistance than conventional steels.

Aluminium use per vehicle is presently over 113 kilogram (kg) on average as compared with 55 kg

in 1986. The aluminium content in cars and trucks in US averages 160 kg at present, as compared

with 117 kg in 2002. Other metals/minerals used in the US include iron and steel (963 kg), carbon

(23 kg), copper (19 kg), silicon (19 kg), and lead (11 kg). The corresponding figure for India is only

46 kg at present; it is however likely to go up in line with the global trend. On average, the light

vehicles in the US and the EU member countries contain 148 kg of aluminium. Aluminium accounts

for 8% of the total weight in Japanese cars, and around 10% in cars and trucks made in the US.

Broadly speaking, other things being equal, vehicle fuel economy improvements can be realised by

weight reduction by the use of alternative materials. In an automobile, aluminium and steel overlap

in such applications as the frame or engine. The average weight of an automobile is 1,000-1,400

kg. The desire to reduce weight and contribute to improved fuel economy has led to an increased

use of aluminium, which is less dense than steel. However, the amounts of aluminium and steel,

particularly as part of the frame of an automobile, are a function of the desired features of

automobile design. Vehicle weight may be reduced either by decreasing the size of the vehicle or

changing the materials it is made of. At constant size and features, the automotive industry has

achieved weight reduction by more extensive use of high strength low alloy (HSLA) steel in the

body structure; use of aluminium castings for the engine block, cylinder head and transmission

case; use of lightweight composite (plastic) materials in the vehicles interior; replacing steel

suspension members with aluminium forgings; and use of space frame or monocoque aluminium

body-in-white. While the use of HSLA, aluminium castings, and lightweight plastics in interiors is

now common, very few vehicles use aluminium bodies. Because of aluminium’s higher cost,

aluminium bodies are currently only used in a few luxury car models. Cost and the eventual need

for large investments to modify the vehicle production process are the main barriers to the use of

lightweight materials such as aluminium.


www.imacs.in 11

Although much attention has been paid to the use of aluminium and plastics in reducing the

weight of vehicles, most vehicles still rely heavily on steel for strength and safety, in the frame and

many components. Stronger, lighter steels have also been developed that can play an important

near-term role in reducing weight. A significant share of high-strength steel could reduce vehicle

weight by up to 10%. The cost of such reductions has been estimated at below $300 per vehicle.

Aluminium also has significant lightweight potential and are already in use in some larger, luxury

vehicles. Aluminium could cut vehicle weights by 10% at reasonable cost and up to 25% when used

in all suitable components, though achieving this full potential could cost well over $1,000 per

vehicle. Composite materials consisting of a glass- or carbon fibre-reinforced polymers could

reduce vehicle weight by up to 40% but could cost up to $20,000 per vehicle.

Traditionally, aluminium usage in automotive industry has been primarily restricted to usage

mainly in components obtained from casting processes, such as wheels, certain elements of the

suspension, the transmission housing and engine parts (pistons, cylinder heads, manifolds, heat

exchanger. In some cases, aluminium extrusions are used as bumper beams or frame components

and are better suited for low production volumes than stamping. Although they carry lower capital

costs, they generally require longer process times for the additional manufacturing steps (bending

or hydroforming).

Recycling can help make aluminium more cost competitive for automotive use. Recycled metal

uses only 10% of the energy to convert back into sheet, and could reduce aluminium cost by

around $200/t. However, the changing types of aluminium alloys used in different vehicle

components may reduce the potential for recycling.

Aerospace

Aluminium is the primary aircraft material, comprising about 80% of an aircraft's unladen weight.

Many internal fittings like the seating on planes are made from aluminium or an aluminium

composite in order to save weight and thus save fuel, reduce emissions and increase the aircraft's

payload.

Building/Construction

Aluminium is being used in the building/construction industry because of its properties like

corrosion resistance, malleability, ductility and strength. The metal finds extensive use in

corrugated sheets (for roofing), butt hinges, latches, tower bolts, handles, etc. The high strength to

weight ratio of the metal enables use of aluminium alloy frames in the construction of high-rise

structures. Besides, aluminium is also being used increasingly in the construction of permanent

bridges, because of its lower maintenance requirements. Moreover, because of the higher

strength-to-weight ratio of the metal, the dimensions of the structurals can be reduced.


www.imacs.in 12

Packaging

In the packaging sector, aluminium is used in foils, cans, collapsible tubes and bottle caps. Hence,

globally, the growth of the packaging industry hinges on growth in sectors like foods, beverages,

and medicines. While the world over, aluminium beverage cans (ABC) account for a substantial part

of the total aluminium consumption, in India, ABC is only a recent phenomenon. However,

carbonated drinks are now increasingly being packed in ABC in India. Within the packaging

industry in India, the foils sub–segment is expected to grow faster than the rest because of its wide

use in food packaging. As public awareness of the advantages of foil use increases, the demand for

aluminium from the packaging sector is also expected to increase.

Consumer Durables

Aluminium, being a thermal conductor, light and corrosion resistant, is used in variety of consumer

durable items like air conditioners, water coolers, refrigerators, utensils and pressure cookers. As in

the case of automotives, the global consumer durables sector is also witnessing a trend towards

weight reduction, which points to good prospects for aluminium off -take by this sector.

Threat of Subst itutes

Copper can replace aluminium in electrical applications; magnesium, titanium, and steel can

substitute for aluminium in structural and ground transportation uses. Composites, steel, and wood

can substitute for aluminium in construction. Glass, paper, plastics, and steel can substitute for

aluminium in packaging.

Relatively lower cost per tonne for steel and higher aesthetic appeal for wood are the positive

factors for these materials. Higher strength/weight ratio, durability and lower corrosion levels are

the positive factors for aluminium. This coupled with usage in newer application areas and the

untapped demand potential (annual per capita consumption of 1 kg per versus over 30 kg in

developed countries are the key factors which may result in greater preference for Aluminium in

India in the future.

The automotive industry's drive for corrosion-resistance and lighter weight has led it to use plastics

and aluminium for a number of applications. However, the development of lighter, stronger, more

formable and more corrosion-resistant steels since the 1980s has enabled the steel industry to

maintain its position and even recapture over a dozen applications. With new galvanising and

coating techniques, steel has met the higher standards for corrosion-resistance. It retains an

advantage over other automotive materials in terms of crash-resistance, due to its energy-

absorbing properties; weldability and strength of welds, also a safety factor; formability, which

contributes to cost savings reparability, which lowers costs; paintability with less environmentally-

damaging processes than aluminium; recyclability; and energy consumption in its own production

(primary aluminium is five times as energy-intensive to produce as steel).

In the aviation sector, aircraft fuel efficiency improvements largely come from increasing engine

efficiencies, lowering weight, and improving lift-to-drag ratios. Light-weighting aircraft by using

new materials and composites can also significantly improve fuel efficiency. Carbon-fibre


www.imacs.in 13

reinforced plastic (CFRP) is stronger and stiffer than metals such as aluminium, titanium or steel,

but its relative weight per volume is half that of aluminium and one-fifth of the weight of steel. In

addition, CFRP suffers little corrosion and is considerably more fatigue-resistant under ideal

manufacturing conditions. One of the key issues for composite materials is to develop ways of

assuring such conditions. Full replacement of aluminium by CFRP could provide a 10% weight

reduction in medium-range aircraft, and 15% in long-range aircraft. CFRP has been increasingly

used in aircraft frame construction. For example, Boeing 787 uses CFRP for 50% of its body (on a

weight basis), with the balance being aluminium (20%), titanium (15%), steel (10%), and others

(5%). This can be compared with a similar break-down for Airbus A380, the world’s largest civil

airliner now in service, which comprises composites (22%), aluminium (61%), steel and titanium

(10%). In contrast, Boeing’s 777 possesses 50% aluminium and only 12% composite. The lighter

weight of Boeing 787 due to greater use of composites greatly reduces fuel burn and a side

advantage is that high humidity in the passenger cabin is possible because composites do not

corrode like aluminium. The lighter weight contributes an estimated one-third of its 20% fuel

efficiency gains compared to comparable existing aircraft. In the near and medium term, the use of

this material in wings, wing boxes and fuselages will increase as the technology matures.

DEMAND-SUPPLY TRENDS AND PROSPECTS

World Product ion

World alumina production declined 10% in 2009 to 78 mt mainly because of a 6% decline in

primarily aluminium production. Alumina production declined in all regions except Asia (excluding

China) where it increased 11%. However, alumina production increased at high rates in 2010 and

2011 primarily because of strong growth in primary aluminium production. Production growth

thereafter declined to 3.4% in 2012 and 3.8% in 2013 because of slowdown in growth of primary

aluminium production. Production declined in Europe, India, and Brazil. Based on production data

from the International Aluminium Institute (IAI), bauxite production increased slightly in 2012 to

263 mt compared with production in 2011. Increases in bauxite production from expanded, new,

and reopened mines in Australia, Brazil, China, Guinea, and India were mostly offset by declines in

production from mines in Indonesia, which enacted strict mine export tariffs during 2012.


www.imacs.in 14

Growth in World Alumina and Primary Aluminium Production

The sharp increase in alumina demand from aluminium production in 2010 turned the global

alumina market from a surplus of 0.3 mt in 2009 to a deficit of 0.8 kt in 2010. Following the

expansion in alumina refinery capacity and slowdown in demand, the global alumina market

returned to a surplus from 2011 with the surplus increasing from 1.3 mt in 2011 to 1.8 mt in 2013.

World Alumina Production

Production

(mt)

Growth

2009 2010 2011 2012 2013 2013 2011-13

Australia 20.26 20.12 19.64 21.56 21.75 0.9% 2.6%

Latin America 13.27 13.81 15.00 14.18 13.52 -4.7% -0.7%

North America 4.28 5.34 5.72 6.06 6.74 11.2% 8.1%

Western Europe 4.66 5.64 5.85 5.79 5.94 2.6% 1.7%

Central & East Europe 6.49 7.02 7.03 6.86 7.15 4.2% 0.6%

China 23.85 31.00 39.20 43.00 47.20 9.8% 15.0%

India 3.69 3.61 3.91 3.79 3.75 -1.1% 1.3%

Other Asia 1.00 1.22 1.12 1.23 1.21 -1.6% -0.3%

Africa 0.53 0.60 0.57 0.15

World 78.03 88.36 98.04 102.62 107.26 4.5% 6.7%

Overall, alumina production is expected to increase at a lower rate of 4% in 2014 to 111 mt inspite

of a forecast lower 1.3% increase in primary aluminium production. Production growth is expected

to be at around 5.5-6% in 2015 as growth in primary aluminium production increases. Overall, the

higher increase in alumina production vis-à-vis aluminium production has resulted in some

alumina oversupply, especially in the Atlantic Basin. China’s bauxite and alumina imports have

grown rapidly, driven by the doubling of domestic aluminium output since 2007. By 2013, China

accounted for 46% of global aluminium output. To support production, China imported 72 mt of

bauxite in 2013, with Indonesia supplying 49 mt, or nearly 70% of total imports into China. China’s

bauxite production was around 47 mt in 2013. Since China started importing bauxite in 2005,

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015F

Alumina Aluminium


www.imacs.in 15

about three-quarters of these imports have come from Indonesia. Since China is heavily reliant on

Indonesian bauxite, imports were notably affected by Indonesian restrictions on raw material

exports during May-November 2012. Although Indonesia’s export restrictions subsequently

evaporated, China's bauxite imports from Indonesia have continued to be high as producers are

building inventories as a buffer against export policy confusion in Indonesia. In January 2014,

Indonesia banned exports of unprocessed ore, seeking to spur investment in processing. With

supply difficulties from Indonesia, China has also increased its bauxite imports from Australia and

India, as producers have tried to limit their exposure to Indonesian disruptions. Australia, through

Rio Tinto, has emerged as the major exporter to China, supplying 14.3 mt in 2013. Australia is now

the principal supplier of bauxite to China, accounting for 55% of the Chinese import market. Other

major suppliers include India which accounted for 22% of China’s imports and Malaysia which

accounted for 13%. Australian bauxite producers have been a major beneficiary of Indonesia’s

announced ban. With the Indonesian ban set to remain in place during 2015 and increased supply

of bauxite available from Australia, Australia’s exports of bauxite are forecast to increase by 17% in

2014-15 to 18 mt. Australia’s bauxite exports have also been supported by the closure of the Gove

alumina refinery as bauxite previously supplying this facility will be exported.

According to data by the IAI, production growth of metallurgical alumina during 2011-14 peaked

at 13.4% in 2Q2011, but has thereafter been declining to 1.7% in 2Q2014. Production declined

1.9% in 3Q2014 primarily because of slower growth in China; and declines in North/South America

and Europe. In the first nine of 2014, the global output of alumina was approximately 76 mt,

representing a (yoy) increase of 1.9%. China’s output of alumina increased 4.6% to 33.4 mt.

However, output declined 5% in North America and 2.7% in Australia.

World Metallurgical Alumina Production

thousand tonnes

-15%

-10%

-5%

0%

5%

10%

15%

20%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Jan

-09

Mar-

09

May-0

9

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

Mar-

10

May-1

0

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar-

11

May-1

1

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

May-1

4

Jul-

14

Sep

-14

No

v-1

4

Others-LS China-LS

Growth-RS Growth ex. China-RS


www.imacs.in 16

Over the period 2003-14, China’s aluminium production increased 5.6 times, and China accounted

for an estimated 90% of total growth in global production during the period. The other major

contributors have been UAE and India, with growth in UAE being higher from 2008-09. By

comparison, production has declined in high cost countries/regions such as US and EU. The Middle

East (especially Bahrain, UAE, and Qatar) has seen a substantial increase in production during 2004-

14, and this trend is expected to continue.

Given that during 2014, China accounted for around 52% of world production and 49% of

consumption; China's production and consumption levels remain critical to the balance of the

market.

World Primary Aluminium Production

Production

(thousand tonnes)

Growth

Country 2008 2009 2010 2011 2012 2013 2012 2013 2009-

13

China 13,178 12,891 16,244 18,135 20,267 22,046 11.8% 8.8% 10.8%

Russian Federation 4,190 3,815 3,947 3,992 4,024 3,724 0.8% -7.5% -2.3%

Canada 3,119 3,030 2,963 2,988 2,781 2,967 -6.9% 6.7% -1.0%

US 2,659 1,727 1,727 1,983 2,070 1,948 4.4% -5.9% -6.0%

Australia 1,974 1,945 1,928 1,945 1,864 1,777 -4.1% -4.7% -2.1%

UAE 892 1,010 1,400 1,750 1,861 1,864 6.3% 0.2% 15.9%

India 1,308 1,479 1,610 1,660 1,714 1,571 3.3% -8.3% 3.7%

Brazil 1,661 1,535 1,536 1,440 1,436 1,304 -0.3% -9.2% -4.7%

Norway 1,368 1,098 1,090 1,202 1,202 1,202 0.0% 0.0% -2.5%

Bahrain 872 848 851 881 890 913 1.0% 2.5% 0.9%

Iceland 760 805 826 781 803 815 2.8% 1.5% 1.4%

South Africa 811 809 806 808 665 822 -17.7% 23.6% 0.3%

World 39,960 37,162 41,504 44,776 46,339 47,693 3.5% 2.9% 3.6%

After dramatic cutbacks in the first half of 2009 resulting in world primary aluminium production

declining 6.2% in 2009, aluminium production recovered strongly during the latter months of 2009

and into 2010 and 2011. Output growth was driven by the restart of idle capacity at independent

Chinese smelters, with high increases at those considered to be `swing capacity’. At the same time,

large smelters with a capacity of 1.3 mt started production in the Middle East. The slowdown in

production and subsequent decline during 2009 was caused primarily because of a sharp

contraction in demand from main user segments. The global financial crisis resulted in a rapid

slowing of construction and manufacturing, leading to weak growth in world aluminium

consumption and production during 2008 and 2009. World consumption of primary aluminium

increased 16.2% in 2010, reversing two consecutive years of falling demand. From September 2009

consumption began to recover strongly. The recovery in aluminium consumption was robust

relative to other base metals because it was strongly influenced by the construction sector, which

had been relatively weak in developed economies. The economic recovery in 2010 led to strong

demand from the electronics sector (which favours aluminium because it is lightweight and

recyclable) and the aerospace and automotive sectors. However, tighter economic policy

conditions in the EU and China weakened growth in global consumption of aluminium from the


www.imacs.in 17

latter half of 2010 and into 2011, owing to a fall in consumer confidence, lower investment

spending and an end to the cycle of restocking in the developed world.

Growth in World Aluminium Production and Consumption

World primary aluminium production growth declined to 3.5% in 2012 to 46.4 mt. The primary

reason was slower growth was a slowdown in consumption demand from late-2011. In addition,

high energy costs and environmental issues also limited output growth. Production cuts by high

cost producers also caused a slowdown in production. In late 2011, high-cost aluminium

producers, including Rio Tinto (UK/Australia), Alcoa (US) and Norsk Hydro (Norway), announced

plans to cut back production in 2012 in response to lower prevailing prices. On a global basis,

around 20 mtpa of capacity was accounted for by producers whose cash costs exceed $2,100/t. Of

these, nearly 75% were in China, followed by North America (7%), Europe (7%), and South America

(6%). Alcoa announced plans to permanently close a number of its higher-cost smelting operations

in response to high energy costs and lower aluminium prices. The closures included the

Portovesme smelter in Italy and La Coruña and Avilés operations in Spain as well as two smelters in

the US (Rockdale, Texas and Alcoa, Tennessee). Together, the production plant closures amounted

to a reduction of 531 ktpa of production capacity. Rio Tinto Alcan also announced the permanent

closure of the 275 ktpa Zeeland Aluminium smelter (ZALCO) in the Netherlands. Norsk Hydro also

announced that it would not restart idled capacity at its Sunndal primary aluminium smelter

(annual capacity of 400 kt) in Norway until market conditions improve. Meanwhile, in addition to

production cutbacks due to lower prices, there were also an unusually large number of production

disruptions due to accidents, technical problems, and other factors. However, measures to cut

production were modest and inadequate in the face of weak demand. The International Aluminium

Institute (IAI) estimated members’ voluntary curtailments in 2012 amounted to about 1.1 mtpa of

smelting capacity. In addition, around 800 kt of production was lost due to involuntary stoppages.

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

-10%

-5%

0%

5%

10%

15%

20%

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014F

Surplus-kt

Production

Consumption


www.imacs.in 18

World aluminium production increased at a slower rate of 2.9% in 2013 to around 47.7 mt.

Announced production curtailments and smelter closures to correct market oversupply caused

production to increase at a lower rate in 2013. Total capacity cuts were around 3 mt by the end of

2013 as companies responded to lower prices and market oversupply. In China, production growth

slowed down from 11.8% in 2012 to 8.8% in 2013. Weak margins prompted cuts affecting almost

1.2 mt of capacity in the first half of 2013. However, many plants since resumed operations. New

smelter capacity far outpaced those temporary cuts in 2013 and production increased by 1.8 mt in

2013. Excluding China, world production declined 1.6% in 2013, compared with a decline of 2.1% in

2012. Voluntary cuts outside China were around 2.2 mt in 2013. Cuts were primary is US, Brazil, and

Russia. In May 2013, Alcoa announced that it would review 460 kt of smelting capacity over a 15-

month period for possible curtailment. This review was aimed at maintaining Alcoa’s

competitiveness despite falling aluminium prices and would focus on the highest-cost smelting

capacity and those plants that have long-term risk due to factors such as energy costs or

regulatory uncertainty. Alcoa’s review of its primary metals operations is consistent with the

company’s 2015 goal of lowering its position on the world aluminium production cost curve by ten

percentage points and the alumina cost curve by seven percentage points. Rusal—the world’s

largest producer with production of 3.9 mt in 2013—cut production by 8% or 316 kt in 2013.

World aluminium production is estimated to have increased by 1.3% in 2014 to 48.3 mt. Excluding

China, world production declined 1.1% in 2014. Production increased at a high rate of 11% in China

and 12% in UAE. However, production is estimated to have declined at high rates in Russia,

Canada, EU, US, and Australia. The program of closures and curtailments undertaken principally by

Rusal and Alcoa appear to have had an effect, with production growth slowing considerably.

Rusal’s aluminium output amounted to 2.69 mt during 9M2014, representing a decrease of 9%

(267 kt) as compared to 2.95 mt in 9M2013 reflecting the successful completion of 2012-2013

capacity curtailments program at the less efficient smelters. Alcoa also cut production by 290 kt to

2.39 mt during 9M2014. At September 30, 2014, Alcoa had 665 kt of idle capacity on a base

capacity of 3,613 kt. As part of its review, Alcoa initiated the permanent shutdown of 146 kt of

combined capacity at the Baie Comeau smelter in Quebec, Canada and the Massena East smelter in

New York, as well as a temporary curtailment of 131 kt of combined capacity at the São Luís and

Poços de Caldas smelters, both in Brazil. All of these actions were completed in 2013. During the

first quarter of 2014, it initiated three additional actions resulting in the permanent shutdown of an

additional 274 kt of capacity and the temporary curtailment of an additional 147 kt of capacity. In

3Q2014, Alcoa approved the permanent shutdown of 150 ktpa at the Portovesme smelter in Italy,

which has been idle since November 2012. Overall closures have moderated the strong increase in

China’s aluminium production. A renewed focus on productivity supported production increases in

the provinces of Gansu, Shaanxi, Xinjiang and Inner Mongolia. In China, production cuts have been

lower against a background of large capacity additions, largely in China's north-west where access

to low-cost coal-based energy has fuelled capacity expansions. However, older, less energy-

efficient plants have come under pressure to close. Expansions in the Middle East have also

countered the effects of production cuts suspensions. Most of the projects in the Middle East entail

access to low-cost energy and programs are likely to be unaffected by weakening product prices.

In 2008, the countries of the Gulf Cooperation Council (GCC) had two smelters (Dubal and


www.imacs.in 19

Aluminium Bahrain), which produced 1.92 mtpa. At present, there are six smelters with an annual

production capacity of 4.9 mtpa.

From late-2008 when the international financial crisis posed a deepening impact on enterprises'

results, major aluminium consuming sectors such as the construction and automotive sectors saw

negative growth in 2009, followed by decreased global aluminium consumption and increase in

inventories. In light of the sharp decline in aluminium prices and decreased consumption,

international aluminium producers reduced production. As of the end of December 2008,

approximately 13.5% of the global aluminium production capacity was idled, while in China,

approximately 24.1% of the aluminium production capacity was idled. Because of the decrease in

the production of primary aluminium, the demand for alumina decreased accordingly, and the

global alumina manufacturers started to reduce their production in the fourth quarter of 2008. As

of December 31, 2008, approximately 9.8% of the global alumina production capacity was idled,

while in China, approximately 24.4% of the alumina production capacity was idled. During 2009,

after declining to a low of 79% in April 2009, global capacity utilisation rebounded to 89% by

November 2009, and stabilised at that level in February-June 2010. This recovery was supported by

the restart of production at independent Chinese smelters, with those considered to be `swing

capacity’ increasing utilisation from a low point of 64% in March 2009 to over 90% in February-

June 2010. Overall, global smelter capacity utilisation averaged 88% in 2010, which is lower than

any year since 1983, apart from 2009. During 2011, global capacity utilisation of aluminium

smelters increased further. As at the end of June 2011, the global production capacity utilisation

rate of aluminium was approximately 83% while the production capacity utilisation rate in China

was approximately 87%. However, utilisation rates in China declined during 2H2011. As of the end

of December 2011, the global capacity utilisation rate of primary aluminium was 84%, while the

utilisation rate in China was 83%.

Since the beginning of 2012, the global alumina operating production capacity further increased.

However, China's alumina enterprises saw a moderate decline in the production capacity utilisation

rate due to the shutdown of part of their production capacities, which was caused by a change in

Indonesia's bauxite export policy restricting the export of bauxite in April 2012. By the end of June

2012, the production capacity utilisation rate of global alumina was approximately 79% while that

of China was approximately 81.6%. As at the end of June 2012, the global production capacity

utilisation rate of aluminium was approximately 82% while that of China was approximately 79.9%.

Alumina capacity utilisation continued to increase in the second half of 2012. As of the end of

December 2012, the global alumina capacity utilisation rate was 85%, while it was 73% in China.

In 2013, the global capacity of alumina continued to increase. The increase in China’s alumina

capacity exceeded that of the international market. The global capacity utilisation rate of alumina

was approximately 77.7% as at the end of June 2013 while that of China was approximately 84.1%.

From January to June 2013, the global capacity of primary aluminium continued to increase. As at

the end of June 2013, the global capacity utilisation rate of primary aluminium was approximately

85.7%, while that of China was approximately 89.3%. However, capacity utilisation fell in the second

half of 2013. As of the end of December in 2013, the global capacity utilisation rate of primary

aluminium was 78.5%, while it was 79.8% in China.


www.imacs.in 20

In the first half of 2014, the global output and consumption of primary aluminium were

approximately 26.25 mt and 26.08 mit, respectively. China's output and consumption of primary

aluminium were 13.51 mt and 13.75 mt, respectively. As at the end of June 2014, the global

capacity utilisation rate of primary aluminium was approximately 79.6%, while that of China was

approximately 81.1%. China's overcapacity is exacerbated by deep vertical integration, both

upstream and into fabrication. Decisions to shut smelters therefore hinge on broader

considerations than direct costs.

In recent years, the Chinese primary aluminium industry has been impacted by government efforts

to cut pollution, curb the expansion of energy-intensive industries and bolster efficiency. The

Chinese government is encouraging consolidation in the industry to create larger, more efficient

producers that are better positioned to implement measures to reduce emissions. Given the high

electricity intensity of aluminium production, the Chinese Government has indicated its desire to

limit the production of aluminium in an effort to conserve power supplies. Current policy is aimed

at curbing the addition of new aluminium smelting capacity through regulations on the size, capital

investment requirements, and environmental standards of new smelters. The larger smelters are

being granted favourable treatment, including priority in the allocation of raw materials and

electricity supplies and prices. These preferential treatments, especially discounts in electricity

prices, give large domestic smelters a stronger competitive advantage over small domestic

smelters. In addition, since January 1, 2005, the Chinese government has prohibited domestic

aluminium smelters whose annual production capacity is lower than 0.1 mtpa from directly

importing alumina (which is more cost-competitive to Chinese producers) to China. As of end-

2011, there were approximately 67 primary aluminium smelting companies operating in China,

which sell substantially all of their products in China. Only 20 primary aluminium producers in

China have annual production capacities of 300 kt or more, which represent approximately 57% of

the total primary aluminium production capacity in China. Only seven primary aluminium

producers in China have annual production capacity of 500 kt or more. The Chinese Government

has encouraged consolidation in the Chinese primary aluminium industry to create larger, more

efficient producers that are better positioned to implement measures to reduce emissions.

Moreover, from 2007, new aluminium projects for expanding production capacity must be

approved by the relevant department of the State Council of China. As of 2012, the Government is

not approving any new aluminium projects except those environmental protection upgrade

projects and expired equipment exchange projects planned by the government.

China released the National Climate Change Programme (NCCP) in July 2007, and a White Paper

entitled China’s Policies and Actions for Addressing Climate Change in October 2008. The NCCP

outlines the impacts that China faces from climate change. A key to the country’s contribution to

lower greenhouse gases is its official energy efficiency objective of reducing energy consumption

per unit of GDP by 20% by 2010, and of quadrupling GDP between 2000 and 2020 while only

doubling energy use. In addition to this general goal, the government is to take measures to close

small, less efficient industrial facilities in sectors including iron and steel, cement, aluminium,

copper, glass or ceramics.


www.imacs.in 21

In July 2013, in order to improve the efficiency and competitiveness of the Chinese alumina

industry as well as to protect the environment, the government published `Standard Conditions for

Aluminium Industry’ pursuant to which any new alumina project must be approved by the relevant

department of the State Council of China and meet the requirements for annual production

capacity and raw materials supply. The Standard Conditions have established a high entry barrier

for new alumina producers in China. China also set lower electricity consumption limits for

aluminium smelters. Under the new rules, power consumption for new and upgraded aluminium

smelters will need to be below 12,750 kilowatt hours per tonne (Kwh/t) for the liquid form and

13,200 Kwh for ingots, while consumption for existing capacity will be required to be below 13,350

Kwh and 13,800 Kwh, respectively. Electricity rates have also been changed for various smelters

from January 1, 2014. Specifically, if the alternating current consumed by any smelter is between

13,700-13,800 kWh/tonne, such smelter must pay additional RMB0.02 per kWh for the electricity

used. If the alternating current consumed by any smelter is more than 13,800 kWh per tonne, such

smelter must pay additional RMB 0.08 for per kWh for the electricity used.

In 2015, world aluminium production is forecast to increase by 2.9% to 49.7 mt. China is forecast to

remain the key driver of world production growth in 2015, with production forecast to increase

4.5% to 24.7 mt. Although older, less energy-efficient plants will continue to be under pressure to

close, new capacity additions (around 5.2 mt in 2014) will imply that China's primary aluminium

output will continue to expand at a high rate. Aluminium production is forecast to decline/stagnate

in the OECD economies. A number of smelters in Australia, the EU and Canada have curtailed

output in response to declining prices, high stock levels and rising input cost pressures, particularly

rising energy costs. Growth in aluminium production is expected to come mainly from Asia (China)

and Middle East (UAE) where large increases in smelter capacity in recent years have contributed

significantly to growth in world aluminium production. However, output growth in India could be

lower than earlier forecast because of current market conditions and recent deallocation of coal

blocks (which could cause higher costs).

Production in the Middle East is projected to increase at an average annual rate of 10% to 7.8 mt

by 2018. High levels of capital investment in the industry, supported by access to cheap energy in

the region, could drive the increase. In the near-term, progress has been reported to be going well

at Ma'aden's new plant in Saudi Arabia (740 ktpa). This joint venture between Alcoa and the Saudi

Arabian Mining Co. produced its first alumina in late-2014. The alumina will feed into the Ma’aden

Aluminium Smelter which produces the aluminium needed for the Ma’aden Aluminium Rolling Mill.

At full capacity, the refinery will produce 1.8 mtpa of alumina, and the output is expected to be

used for the 740 ktpa smelter. The 500 ktpa expansion to 1.3 mtpa at Emirates Aluminium smelter

has also made faster progress than expected.

During 2010, India’s primary aluminium production increased 8.9% to 1,610 kt. Production

increased 8.4% (yoy) in 4Q2010, compared with growth of 8.5% (yoy) in 3Q2010, and 8.2% (yoy) in

4Q2009. During 2010, Hindalco’s aluminium production declined 2.2% to 539 kt. Operations of

aluminium smelter at Hirakud were affected since July 2010 because of pot outages caused by

heavy rains and lightning. However, Nalco’s production increased 7.5% during 2010 to 445 kt.

Aluminium production of Balco declined 9.6% to 256 kt primarily on account of the complete ramp


www.imacs.in 22

down of the BALCO plant I smelter. However, a group company—VAL—commenced production in

FY2009, and reported a 60.7% increase in aluminium production to 370 kt in 2010. During 2011,

primary aluminium production in India increased 3.1% to 1,660 kilotonnes (kt). On a fiscal year (FY)

basis, production increased 3% during FY2012 to 1,668 kt, compared with an increase of 0.6% in

FY2011. Production declined 0.2% (yoy) in 4Q2011, but increased 1.9% in 1Q2012. During 2012,

India’s primary aluminium production increased only 3.3% to 1,714 kt. Production increased 7.1%

during 3Q2012 and 5.6% in 4Q2012 primarily because of substantially higher production by

Vedanta Aluminium Ltd (VAL), now Sesa Sterlite Limited (SSL). Except for SSL, all the primary

producers reported declines or low growth in production.

India’s Aluminium Production and Growth

Thousand tonnes

During 2013, India’s primary aluminium production declined 8.3% to 1,569 kt. Production declined

in all the four quarters of FY2014. Except for VAL/Sesa Sterlite and Balco, all the primary producers

reported declines.

547 545 621 649 624

671

799 861

942

1,105

1,222

1,308

1,479

1,610

1,660

1,714

1,569

1,590

1,700

-10%

-5%

0%

5%

10%

15%

20%

25%

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015F

Consumption

Growth

5-year CAGR (2010-14)


www.imacs.in 23

India’s Aluminium Production

thousand tonnes

During 9M2014, India’s primary aluminium production declined 0.7% to 1,182 kt. However, after

four successive quarters of decline, production increased 2.4% in Q1FY2015. The growth in

Q1FY2015 was primarily because of ramp up of production by Hindalco, following four quarters of

high declines. Production increased by a substantially higher rate of 9.6% in Q2FY2015 because of

strong growth reported by Hindalco and Balco. Hindalco’s metal production was up substantially

to 187 kt in Q2FY2015, compared with 140 kt in Q2FY214, consequent to the ongoing ramp-up at

Mahan smelter.

Aluminium Production

tonnes

Tonnes Growth Tonnes Growth

9M

2013

9M

2014

H1

FY2014

H1

FY2015

Nalco 257,168 238,777 -7.2% 159,107 161,276 1.4%

Hindalco 342,655 307,167 -10.4% 200,165 204,885 2.4%

Balco 186,883 227,919 22.0% 125,719 158,986 26.5%

Vedanta/Sesa Ster. 403,830 407,815 1.0% 270,897 270,152 -0.3%

Total 1,190,536 1,181,678 -0.7% 755,888 795,299 5.2%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

100,000

110,000

120,000

130,000

140,000

150,000

160,000

Jan

-09

Mar-

09

May-0

9

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

Mar-

10

May-1

0

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar-

11

May-1

1

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

May-1

4

Jul-

14

Sep

-14

No

v-1

4

Production

Growth (yoy)


www.imacs.in 24

Growth in Primary Aluminium Production

(yoy)

Nalco Hindalco Balco Vedanta Total

Q1FY10 20.5% 9.1% -20.4% 19.3%

Q2FY10 13.8% 6.7% -30.0% 12.7%

Q3FY10 24.7% 5.1% -30.8% 98.9% 8.2%

Q4FY10 18.4% 4.1% -24.4% 88.7% 12.8%

Q1FY11 6.6% 3.6% -11.4% 31.0% 5.9%

Q2FY11 6.3% -12.2% 1.0% 72.6% 8.5%

Q3FY11 0.0% -3.9% 1.6% 55.8% 8.4%

Q4FY11 -1.2% -0.2% -4.9% 15.2% 2.3%

Q1FY12 -0.7% 0.3% -2.5% 48.2% 8.9%

Q2FY12 -4.4% 16.4% -5.3% -6.3% 1.5%

Q3FY12 -15.8% 7.2% -3.0% 8.8% -0.2%

Q4FY12 -6.6% 4.5% 0.6% 8.1% 1.9%

Q1FY13 -7.2% -6.4% 0.1% 9.3% -1.5%

Q2FY13 -2.3% -10.5% 3.5% 47.8% 7.1%

Q3FY13 7.3% -4.5% -1.0% 21.2% 5.6%

Q4FY13 -5.8% -2.0% 0.1% 13.0% 1.5%

Q1FY14 -17.8% -23.0% 0.9% 8.2% -9.0%

Q2FY14 -27.1% -22.6% 0.2% 1.9% -12.6%

Q3FY14 -21.4% -27.9% 3.4% 1.2% -13.0%

Q4FY14 -19.9% -27.8% 4.5% 1.9% -12.4%

Q1FY15 -6.1% 0.7% 20.4% 0.8% 2.4%

Q2FY15 8.4% 3.5% 40.3% 0.4% 9.6%

World Consumption

Metals (including aluminium, copper, and steel) consumption is positively correlated with industrial

production, with the estimated elasticity of demand with respect to industrial production

somewhat higher at 1.2 in developing countries than for industrialised economies (1.0). Metals

demand is also positively correlated with the real gross domestic product (GDP) as the nation

gradually evolves from a traditional society into an industrialised one. Another interesting measure

of metals demand trends is the trend in per capita consumption over time. Historical trends have

shown increases in per capita consumption with increases in per capita income up to a point

($15,000-20,000 in purchasing power parity), with reductions in per capita consumption thereafter.

Looking forward, it is clear that as developing countries industrialise, they will increase their per

capita consumption of aluminium and other metals.


www.imacs.in 25

Per Capita Aluminium Consumption in Select Economies

Kg per annum

After a strong growth in world consumption during 2002-07, world aluminium consumption

declined 1.4% in 2008, and 6.3% in 2009. The decline in 2008-09 was caused by substantial

slowdown in China’s consumption growth. Excluding China, consumption declined for three

successive years from 2007, with consumption declining 2.3% in 2008, and 17.2% in 2009. After

increasing in the first half of the year, consumption growth slowed markedly from late-2008. The

global financial crisis resulted in a rapid slowing of construction and manufacturing, leading to

weakening growth in world aluminium consumption. In China, growth in aluminium consumption

in the first half of 2008 was relatively strong. This was supported by consumption of aluminium in

industrial and commercial applications such as electricity transmission infrastructure. In the US,

annual aluminium consumption peaked at 6.15 mt in 2006, but declined to 4.91 mt in 2009. This

was a result of the flow on effects from the global financial crisis and associated effects from

declining housing construction, vehicle manufacturing and consumer spending.

World aluminium consumption continued to decline in 2009. China’s consumption increased 15.8%

to 14.3 mt, primarily because of the effects of the stimulus package. Other countries reporting high

growth included India. Lower industrial activity in most developed economies reduced demand for

aluminium used in applications such as ship building, construction, and manufacture of consumer

durables and automobiles. In the US—the second largest market—apparent consumption declined

for the third consecutive year. However, US consumption recovered since the second half of 2009.

In the EU, despite the various stimulus packages and the success of the car scrappage schemes in

Germany and the UK, consumption declined 26% to 5.2 mt. Japan experienced the largest

contraction in aluminium demand of any country in 2009, with consumption declining 31% to 1.52

mt, the lowest level since 1982, as export markets for Japanese products were badly affected in the

first half of 2009.

0

5

10

15

20

25

30

1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Japan US Korea China


www.imacs.in 26

Following two years of decline, primary aluminium consumption recovered strongly in 2010,

increasing by 16.2% to 40.2 mt. Excluding China, world consumption increased 20% in 2010 with

especially high growth in the developed economies. The economic recovery in 2010 led to strong

demand from the electronics sector (which favours aluminium because it is lightweight and

recyclable), aerospace, and automotive sectors. In the first half of 2010, China's growth in

aluminium consumption was driven by ongoing expansion of the aluminium-consuming sectors,

and the government's stimulus package. However, consumption growth slowed down in the

second half of 2010 in response to government efforts to cool the economy, combined with

uncertainty about prospects for export markets. Consumption in the EU increased 34% in 2010 to

6.8 mt, compared with a decline of 27.8% in 2009. High growth was driven by low base of

comparison and was boosted by restocking. Of the aluminium-using industries in EU, the

automotive sector was one of the main drivers of the recovery in 2010. Exports of premium cars to

Asia boosted demand for rolled products and use of aluminium in volume cars became more

widespread due to increased focus on light weighting. Later in 2010, demand in the mass transport

sector also picked up. Demand for aluminium cans and foil was much less affected by the 2008-09

crisis and growth continued at a stable rate. Recovery in the building sector however presented a

mixed picture in Europe, due to longer economic cycles in this sector. India's consumption

increased 1.1% in 2010, primarily because of the base effect, but also because of deceleration in

manufacturing production from the second half of 2010.

World Aluminium Consumption

Consumption

(thousand tonnes)

Growth

Country 2008 2009 2010 2011 2012 2013 2012 2013 2009-

13

China 12,413 14,300 15,854 17,702 20,274 21,955 14.5% 8.3% 12.1%

US 4,906 3,854 4,242 4,060 4,845 4,633 19.3% -4.4% -1.1%

Germany 1,936 1,277 1,912 2,103 2,086 2,083 -0.8% -0.1% 1.5%

Japan 2,250 1,523 2,025 1,946 1,982 1,772 1.8% -10.6% -4.7%

India 1,284 1,458 1,475 1,569 1,690 1,534 7.7% -9.2% 3.6%

Korea, Rep. of 964 1,038 1,255 1,233 1,278 1,241 3.7% -2.9% 5.2%

Brazil 932 799 985 1,077 1,021 988 -5.2% -3.2% 1.2%

Turkey 576 544 703 870 925 867 6.3% -6.3% 8.5%

Italy 951 661 867 982 754 709 -23.2% -6.0% -5.7%

Russian Federation 1,020 750 685 685 685 685 0.0% 0.0% -7.7%

France 689 538 549 584 546 588 -6.4% 7.7% -3.1%

Thailand 407 330 429 404 479 508 18.4% 6.1% 4.5%

World 36,900 34,572 40,181 42,471 45,543 46,236 7.2% 1.5% 4.6%

World aluminium consumption growth moderated to 5.7% in 2011, primarily because of declines in

US and Japan. Although China’s consumption growth was high at 11.7% in 2011, growth was

driven by restocking even as real demand growth was lower. In the developed economies.

persistent economic uncertainty undermined business confidence and investment in much of the

EU and US. US aluminium demand declined 4.3% in 2011, primarily because of slowdown in the

automotive sector. In Japan, consumption declined 3.9% in 2011 because of severe disruptions to

the manufacturing supply chain and consumer sentiment as a result of the earthquake and nuclear


www.imacs.in 27

disaster in March 2011. India’s consumption increased 6.4% in 2011 primarily because of high

growth in the first half of 2011 in the construction and automotive sector.

World aluminium demand increased 7.2% in 2012 to 45.5 mt primarily because of high increases in

US, China, and India; and partial recovery in Japan. By comparison, consumption declined 7% in the

EU. Consumption increased at high rates in China and India, reflecting continued strong

consumption growth in China stemming from growth in construction and manufacturing activities.

Aluminium consumption growth in China was supported by residential and non-residential

property construction, electricity transmission network construction, and manufacture of

aluminium-intensive products for both domestic and export markets. Demand in the US, the

largest OECD consumer of aluminium, increased 19% in 2012 because of the strong performance

by the US automotive sector. Demand from the construction sector also increased as the housing

market showed noticeable improvement, with home sales rising steadily and house prices up. In

Japan, demand increased 1.8% in 2012 because of base effect and higher demand stemming from

the post-quake reconstruction phase. Furthermore, automotive production was strong since the

beginning of 2012, buoyed by tax incentives on car purchases. Consumption growth was lower as

the year progressed. The deceleration in world trade and the persistent strength of the yen stalled

exports. Domestic demand also slowed, in part as the phasing out of government subsidies to

promote car purchases weakened private consumption. India’s consumption increased 7.7% in

2012 primarily because of high increases in the early part of the year. However, growth declined

subsequently because of substantial slowdown in construction and automotive sectors, and weaker

business confidence. EU aluminium consumption rose by just 2.4% in 2011, supported by

continued expansion in the German automotive sector. However, consumption declined 8% in

2012 because of contraction in regional GDP, weak property markets, fiscal tightening and the end

of the restocking cycle. Household consumption, business investment and government spending

all contracted, and export demand weakened. The simultaneous fiscal consolidation in almost all

euro area countries and private sector deleveraging in high-debt economies weakened confidence.

These negative trends were only partly offset by some resilience in the German economy, where

aluminium demand declined at a lower rate.

Aided by strong growth within Asia and the US, world aluminium consumption rose by 1.5% in

2013 to 46.2 mt, with ex-China consumption declining by 3.4%. Consumption in China grew by

8.3%, However, consumption declined in India and Japan. Chinese fixed-asset investment

increased 19.6%. New construction projects rose 13.5% in 2013. During 2013, the Chinese

automotive industry was the top gainer, surging 14.9% with record sales of 22 million vehicles. In

South East Asia, the transport sector remained strong, with Thailand continuing to be a leader in

automotive production in the region. Construction activity also grew in the region, led by

infrastructure development and the building of new houses. In Japan, following industrial

production weakness experienced during the first nine months of 2013, economic indicators in late

2013 signalled improved market conditions, and helped reverse declines in demand. In North

America, the transport sector remained the main driver of aluminium consumption growth in the

region. Light vehicle production in North America increased 4.3% in 2013. Demand was driven by

increased demand for aluminium automotive body sheets and announced expansions by

aluminium rollers to meet the demand. Although EU demand declined 2.8% in 2013, demand


www.imacs.in 28

experienced a strong rebound in 4Q2013, with the biggest increase from Turkey, Germany, and

France.

Although the global economic backdrop has become increasingly challenging during the second

half of 2014, world apparent consumption of aluminium is estimated to have increased 5% in 2014

to 48.5 mt driven by strong growth in China, US, and Japan. Demand growth also showed an

acceleration in Brazil, South Korea and Turkey. Demand however declined 7% in India. In China,

demand increased at a marginally lower rate of 8% in 2014. China has been transitioning to more

moderate growth of 7-8% from 2012 (compared with >9% during 2002-11), and a rebalancing of

demand from investment to consumption. The gradual decline in GDP growth in China continued

in 3Q2014. Consumption and trade were the main growth drivers, while the contribution from

investment weakened, mainly reflecting a slowdown in housing investment and a moderation in

credit growth. China’s housing market, although still deteriorating, is showing signs of a tentative

stabilisation. The pace of decline in housing activity and prices has however abated, with a number

of measures by central and local authorities over recent months. The sharp slowdown in economic

activity has prompted the introduction of a series of mini stimuli, accompanied by a recent across-

the-board reduction in policy rates. The Chinese authorities continue to emphasise that China is

moving towards a lower, but more sustainable, growth path and that growth expectations should

be adapted accordingly. In the US, demand increased at a high rate of 4% in 2014 primarily

because of stronger growth from 2Q2014. Demand declined in 1Q2014 largely reflecting unusually

severe weather conditions that depressed economic activity. Subsequently, the economic recovery

has gained traction supported by favourable housing and labour market developments. Personal

consumption expenditure and private fixed investment also contributed positively to growth,

confirming the robust economic fundamentals. The US economy is likely to maintain a positive

growth momentum in 4Q2014, although real GDP growth may slow down somewhat compared

with the previous two quarters. For 2015, consumption and investment could be supported by

positive wealth effects, continued improvements in labour market conditions that lead to higher

growth in disposable income, high levels of consumer sentiment and, significant decline in

gasoline prices. In Japan, although demand increased 16% in 2014, growth tapered off from

2Q2014. Demand growth was high in 1Q2014 because of heavy restocking ahead of increase in

consumption tax rate (from 5% to 8%) in April 2014. Economic activity in Japan has been

weakening in recent quarters. This followed a substantial expansion in 1Q2014 driven by front-

loading of private consumption in advance of the consumption tax increase. Because of sharp

declines in 2Q/3Q2014, the government has announced that the increase in the consumption tax

rate from 8% to 10% that had been scheduled for October 2015 will now be postponed to at least

18 months till April 2017. Demand in EU declined 0.5% in 2014. Although the euro area emerged

out of recession in 2013, the underlying recovery remains relatively slow and has lost momentum.

Gross fixed capital formation has had a neutral contribution to GDP growth. Most recent survey

results signal mixed developments. While the European Commission’s Economic Sentiment

Indicator was above 100 for 2014, the indicator has declined from 102.6 in May 2014 to 100.7 in

December 2014. The composite output Purchasing Managers’ Index (PMI) has also declined, but

remains in line with positive but moderate growth.


www.imacs.in 29

World aluminium consumption is expected to increase 2% in 2015 to 49.7 mt, with demand growth

in China expected at 2%. Growth is expected to moderate as China’s general economic slowdown

results in lower growth in manufacturing output. US aluminium consumption is estimated to have

increased by 4% in 2014 to 4.9 mt, supported by resurgence in construction and automotive

production. These industries are expected to continue to drive consumption growth in 2015, which

is forecast to increase by 5%. In 2014 aluminium consumption in Europe is estimated to have

contracted 0.3% to 7.6 mt. Consumption of aluminium intensive products such as automobiles and

household goods have been subdued. In 2015, Europe’s aluminium consumption is forecast to

increase by 0.3% to 7.6 mt.

Over the past few decades, aluminium has been the most important substitute for copper, taking

over substantial market segments, on account of its conductivity of electricity and heat, its low

weight, corrosion characteristics, and lower prices relative to copper. Aluminium weighs about one-

third as much as steel or copper. It is malleable, ductile, and easily machined and cast; and has

excellent corrosion resistance and durability. However, in some applications, despite being

cheaper, aluminium substitution has been restrained. For example, in car radiators, although

copper is more expensive, it has superior corrosion and heat conductivity characteristics. Hence, a

copper radiator is expected to last longer, and less metal is required for a given cooling

performance. Copper is also easy to work with, simplifying and cheapening the manufacturing

process, especially where soldering and brazing are involved. Even after 40 years of competition,

copper is maintaining a 40% share of the car radiator market.

Aluminium has been taking over copper's traditional markets in important electrical applications.

One such market is for overhead conductors and underground cables for carrying electricity.

Though aluminium is not as good an electrical conductor measured per unit of weight, its lightness

and tensile strength makes aluminium cables of a given carrying capacity both lighter and stronger

and far cheaper than cables made of copper. For these reasons, aluminium has come to dominate

long distance electricity transmission in recent decades. On the other hand, where space, cross

section, ease of jointing and ability to stand high temperatures are of concern, e.g. in bus bars,

switchgear, transformers and electrical generators, copper has been able to maintain its

competitiveness.

Since June 2002, aluminium prices have declined relative to copper, and were on average only 27%

of copper prices in 2010-14. Further, although copper’s price decline during 2012-14 has kept the

absolute price differential below 2011 peak of $6,427/t, it was $4,995/t in 2014.


www.imacs.in 30

World Aluminium and Copper Prices

$/tonne (t)

China is expected to remain the primary driver of aluminium consumption over the long-term.

Although, aluminium consumption in China is growing faster than GDP, consumption on a per

capita basis remains very low as compared with developed countries.

India’s Aluminium Consumption

India’s aluminium consumption increased 13.6% in 2009 to around 1.46 mt, driven by a double

digit growth in aluminium forms of castings, extrusions and wire rods, consumed mainly in

transportation, building and electrical segments respectively. Consumption growth was also

supported by strong increase in automotive production growth from 2.7% in 2008 to 15.1% in

2009. India's consumption increased 1.2% in 2010 to 1.52 mt, primarily because of the base effect,

but also because of deceleration in manufacturing production from the second half of 2010.

Consumption increased 6.4% in 2011 primarily because of the base effect and stronger growth

during the first half of 2011. Consumption increased 7.7% in 2012 to 1.69 mt mainly because of

demand growth in the electrical and construction sector. Consumption declined 9% in 2013 and

6% in 2014 because of lower domestic production, and weakness in electrical and construction

sector investments. Growth could be constrained till early-2015 because of weak economic activity,

restrained investment, and decline in demand for automobiles.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015F

Copper Aluminium


www.imacs.in 31

India’s Aluminium Consumption and Growth

Thousand tonnes

Data for India’s apparent aluminium consumption is somewhat unreliable as data is limited. As a

result, apparent consumption, rather than actual consumption, is commonly used as an

approximation. Apparent consumption is defined as domestic production plus net imports minus

reported stock changes. It therefore represents the volume available for consumption adjusted for

reported stock changes. Although apparent consumption is a good approximation of actual

consumption, it is subject to many measurement errors. For example, unreported changes in

stocks, either at the retail or wholesale level, can result in large differences between apparent

consumption and actual consumption.

During the last few years, the domestic aluminium market witnessed a growth in demand

particularly from power, automotive, and housing sectors. The demand figures include only

primary aluminium and do not include recycled aluminium demand or secondary aluminium

demand, which is around 0.7 mtpa. India lags behind developed countries where usage of recycled

aluminium is nearly 10 times that of primary aluminium because of energy savings.

The electrical sector has been the largest consumer of aluminium, accounting for 39% of the

aluminium consumption. The demand from the sector has been growing at a healthy 6-7% per

annum. To fulfil the estimated electricity demand requirement, the 11th

Plan had estimated

required capacity addition of 78,577 MW at an estimated investment requirement of Rs. 6,665

billion. However, the Mid-Term Appraisal of the 11th

Plan (MTA, 11th

Plan) had revised the target

for total capacity addition downwards to 62,374 MW, which is nevertheless about three times the

capacity actually added in 10th

Plan. Based on the expected capacity expansions during the 11th

Plan and associated investments in transmission and distribution. Studies carried out by the Central

Electricity Authority (CEA) indicate required capacity addition of around 72,000 MW during the 11th

Plan and 86,500 MW during the 12th

Plan comprising of 30,000 MW of hydro, 44,500 MW of

570 602 589 604

798 861

958

1,079

1,207 1,284

1,458 1,475

1,569

1,690

1,534

1,442

1,571

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1999 2001 2003 2005 2007 2009 2011 2013 2015F

Consumption

Growth

5-year CAGR (2010-14)


www.imacs.in 32

thermal and 12,000 MW of nuclear capacity. As a result, aluminium requirement for power

generating stations and components of power system has been estimated at around 15.8 mt

during the 12th

Plan.

The automotive/transport sector is the second largest user of aluminium in India. Consumption

from the automotive segment had grown at a healthy rate till 2007-08 driven by the demand in the

automotive sector and a significant increase in the intensity of aluminium consumption. However,

following a period of high growth, India’s automotive production witnessed stagnation and decline

in FY2008-09, subsequently increasing at high rates of 25.8% in FY2010, and 27.3% in FY2011.

However, production increased at substantially lower rates of 14% during FY2012. Growth rates

continued to decline in FY2013-14 with production increasing only 4% in FY2014. Production

however increased 11.1% during 9MFY2015 with high growth in commercial vehicles and two

wheelers. India is emerging as a global hub for automotive as well as auto components production,

which is likely to fuel demand further. The building and construction sector is also poised to grow

further. The current housing shortage is estimated to be around 25 million units in urban areas and

15 million units in rural areas.

Although India’s annual per capita aluminium consumption has increased from 0.6 kg in 1996 to

1.1 kg in 2014, China’s annual per capita consumption has increased from 0.81 kg in 1991 to 17.3

kg in 2014. However, India’s per capita consumption is unlikely to increase at the same rate as

China. China’s per capita consumption at a given income level is higher than in the other emerging

markets, mainly because it has a higher share of industry in GDP. By comparison, India’s industrial

sector has a much lower share in GDP. Over the last three decades, manufacturing has been

consistently the principal source of growth in China, followed by services, with agriculture falling

behind as its growth slowed and its share diminished. The high share of manufacturing is because

of increased manufacturing exports, and the Government has stimulated the development of

manufacturing activities with export potential. By comparison, in India, the share of industry in total

GDP increased till the late-1990s, but has thereafter declined to 17-18% in recent years. In recent

years India has made large investments in infrastructure on roads, as indicated by the large

increase in construction activity. However, the infrastructure gap remains large. Unlike in the case

of China, India’s services sector has performed better than industry. India’s presence in the global

manufactured exports market is limited mainly to low-tech (textiles, garments, and footwear) and

resource-based products. As a share of world production, India’s manufacturing activities are of

significance in subsectors such as food products, textiles and apparel, leather products and

footwear, (petro) chemicals, and, more recently, iron and steel.


www.imacs.in 33

Per Capita Aluminium Consumption in India and China

Kg per annum

The per capita consumption of aluminium in India is currently at 1.1 kg per annum, which

compares poorly with China, and most developing countries. The current low consumption of

aluminium in the country, besides the fact that India has the fifth largest bauxite reserves in the

world, points to large growth potential for the sector.

Per Capita Aluminium Consumption

Kg per annum

DOMESTIC SUPPLY CHAR ACTERISTICS

The domestic aluminium industry can be divided into primary producers and secondary fabrication

units. The figure below presents the structure of the Indian aluminium industry.

0

2

4

6

8

10

12

14

16

18

20

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

India China

0

5

10

15

20

25

30

China US Germany Japan Korea India Russia Brazil World

2002

2014


www.imacs.in 34

Structure of Indian Aluminium Industry

Pr imary Producers

Given that production of primary aluminium (the metal) is a more capital-intensive activity than

fabrication, there are just four primary producers in India, as against several small downstream

manufacturers. These players are:

1. Hindalco Industries Ltd. (Hindalco)

2. National Aluminium Company Ltd. (Nalco)

3. Sesa Sterlite Limited (SSL)—through its 51% acquisition of Bharat Aluminium Company Ltd.

(Balco), and holding in Vedanta Aluminium Ltd. (VAL)

SSL is part of Vedanta Resources (VR) which has principal operations located in India, through its

holdings in various companies. SSL is majority-owned and controlled subsidiary of Vedanta. Volcan

Investments Limited, or Volcan holds 62.3% of the share capital and 69.6% of the voting rights of

Vedanta as of July 31, 2014. Volcan is a holding company, 100% owned and controlled by the

Trust. Conclave is the trustee of the Trust and controls all voting and investment decisions of the

Anil Agarwal Discretionary Trust (Trust). As a result, shares beneficially owned by Volcan may be

deemed to be beneficially owned by the Trust and, in turn, by Conclave PTC Limited (Conclave).

The beneficiaries of the Trust are members of the Agarwal family, who are related to Mr. Anil

Agarwal. Mr. Anil Agarwal, the Executive Chairman of Vedanta and Chairman Emeritus of SSL, as


www.imacs.in 35

protector of the Trust, may be deemed to have deemed beneficial ownership of shares that are

beneficially owned by the Trust.

SIL holds 51% of Balco’s share capital and has management control of the company. The GoI owns

the remaining 49%. SIL exercised an option to acquire the Go’s remaining ownership interest in

BALCO on March 19, 2004, which has been contested by the GoI. Twin Star also holds a 78.8%

stake in Malco. In addition, another group company—Sterlite Infraventures Ltd—holds a 16% stake

in Malco. Vedanta Aluminium (VAL) is 70.5% owned by Vedanta through Twin Star and Welter

Trading, following a Rs. 4,421 million investment in March 2005. The balance 29.5% is held by SIL.

On February 25, 2012, SSL, Sesa Goa and Vedanta announced an all-share merger of SSL and Sesa

Goa to create Sesa Sterlite and to effect the consolidation and simplification of Vedanta's

corporate structure through the Reorganisation Transactions consisting of the Amalgamation and

Reorganisation Scheme and the Cairn India Consolidation. The Amalgamation and Reorganisation

Scheme was On August 17, 2013, Sesa Goa Limited (SGL) and SSL announced that merger of

Sterlite and The Madras Aluminium Company Limited (Malco) with Sesa Goa and transfer of

MALCO power plant to Vedanta Aluminium Limited (VAL) pursuant to the Scheme of

amalgamation and arrangement amongst Sterlite, Malco, Sterlite Energy Limited (SEL), VAL and

Sesa Goa and their respective Shareholders and Creditors had become effective. The name of Sesa

Goa Ltd has been changed to Sesa Sterlite Ltd (SSL) from September 18, 2013

Vedanta’s aluminium business is owned and operated by SSL and by Balco in which it has a 51%

interest as at March 31, 2014. Till recently, Malco was primarily an integrated aluminium

manufacturing company with a captive power plant. Malco’s primary aluminium production

peaked at 37 kt in FY2006 (3.7% of domestic aluminium production) but subsequently declined to

23 kt by FY2009 (or 1.7% of domestic production). As world and domestic aluminium prices

declined in 2008-09, Malco found it unviable to produce (based on its older Soderberg-

technology). A switch in technology to pre-baked (PFPB) electrodes would have entailed a

significant investment. Besides, the non-renewal of leases to use bauxite mines made it

uneconomical for Malco to source raw material from distant locations in a cost-effective manner.

As a result, Malco shut down aluminium production from late-2008 and has altered its business

model from aluminium production to power generation. Subsequently, on February 25, 2012,

Sterlite, Sesa Goa and Vedanta announced an all-share merger of Vedanta’s majority-owned

subsidiaries Sesa Goa and Sterlite to create Sesa Sterlite and a consolidation of various subsidiaries

held within Vedanta.

Despite being secondary products, rolled products are largely manufactured in the primary sector

on account of the high capital costs involved in setting up cold /hot rolling mills.

The five primary producers presently have an installed capacity of 1.8 mtpa of primary aluminium.

The trends in production of the five players is as follows:


www.imacs.in 36

Trends in Instal led Capacity and Aluminium Production of Primary Producers

Thousand tonnes

FY 2008 2009 2010 2011 2012 2013 2014

Capacity 1,204 1,529 1,468 1,468 1,697 1,689 1,765

Nalco 345 403 435 435 438 430 460

Hindalco 471 488 500 500 514 514 560

Balco 350 350 245 245 245 245 245

Malco 38 38 38 38 0 0

VAL 250 250 250 500 500 500

Production 1,238 1,349 1,525 1,619 1,668 1,719 1,516

Nalco 360 361 431 444 413 403 316

Hindalco 478 524 556 538 575 542 404

Balco 362 357 263 253 0 248 254

Malco 38 23 0 0

VAL 0 83 274 384 433 526 542

Balco, Malco, and VAL are part of SSL/Vedanta.

The domestic primary aluminium industry is characterised by a high degree of concentration

because of the following reasons:

high capital costs because of large plant sizes (150-200 kt per annum or ktpa smelters) and

high capital intensity;

restricted access to technology; tie-ups have to be entered into with global technology

suppliers.

entry into the aluminium industry restricted by licensing controls till 1989.

Restrictive access to bauxite resources.

Secondary Producers

The secondary rollers and extruders in the Indian aluminium industry either purchase the primary

metal (billets and blooms) from domestic producers or import the same and process the metal at

their own fabrication plants into semi- or fully -fabricated products. The secondary metal

(aluminium) industry in India is characterised by:

low entry barriers because of low capital costs and low dependence on technology. The

low entry barriers, in turn, imply intense competition and low capacity utilisation.

high input cost: Most of the domestic production of primary aluminium is either captively

consumed or exported by the primary producers. The secondary players, therefore, rely

heavily on imported aluminium, which is costlier than domestic supplies because of the

import duties. In fact, the high landed costs of primary aluminium exert great pressure on

the margins of secondary producers (primary producers, on the other hand, have started

integrating downwards to take advantage of the low cost of aluminium that they produce

in house).

Since primary players produce aluminium at much lower costs vis-à-vis the landed cost of

imported aluminium that is used by most secondary players, the margins of primary producers

increase if they undertake higher-value added secondary processing themselves. The primary

industry have thus started integrating downwards, with the share of secondary products in total


www.imacs.in 37

sales increasing over the years. As the primary producers account for bulk of the products in the

domestic secondary market, this market is dominated by primary producers themselves.

Hindalco had an alloy wheel plant at Silvassa (Gujarat) manufacturing automotive alloy wheels with

an installed capacity of 300,000 units per annum (upa). Production peaked at 196,621 units during

FY2007 (with sales of Rs. 403 million) but thereafter declined primarily because of a slowdown in

domestic automotive sales, lower demand from automotive manufacturers, and higher

competition from imports. As a result, operations at the plant were discontinued from mid-2009.

Aluminium Recycl ing

Aluminium can be produced either from bauxite (primary production) or from aluminium scrap.

Anything made from aluminium can be recycled to produce the metal again. `Secondary’

aluminium is produced from recycled scrap that is either generated at the smelter and fabrication

plants or collected post consumption. Thus, the aluminium scrap is categorised as new and old,

due the distinction of pre or post consumption. Usually there is no need for sorting of the new

scrap and it can be used on-site at the smelter or transported directly to a secondary refiner or

remelter. Pretreatment is only needed when the new scrap includes alloys. Old scrap is waste

material that has high aluminium content, such as electronic appliances, automobile parts,

construction material, packaging material, etc. Primary smelting is the most energy intensive

activity in the aluminium sector. The energy usage for refining is between 225-260 KWh/t,

compared to between 14,000-16,000 KWh/t of product for primary smelting. Recycling aluminium

scrap is significantly less energy intensive, while secondary re-smelting requires between 120-340

KWh/t product and only 5% of energy used in primary smelting. Thus, aluminium scrap or

`Secondary Aluminium’ is an important source of supply for aluminium alloys. Secondary

aluminium production accounted for 16% of total aluminium production in 2013.

Recycling was a low-profile activity until the late 1960s when recycling of aluminium beverage cans

finally vaulted recycling into the public consciousness. Other sources for recycled aluminium

include automobiles, windows and doors, appliances, and other products. Recycling of aluminium

is economically viable, because of the high value of raw materials and the relatively low costs of

processing. The melt temperatures for aluminium are around 1,500 Fahrenheit (F), as compared

with 210 F for plastics, 2,800 F for glass, and 3,000 F for steel. In Europe aluminium has high

recycling rates, ranging from 41% in beverage cans to 85% in building and construction and 95% in

transportation. In Japan the recycling rate for cans was 79%. Recycling in Japan has been growing,

with the fastest growth over the last decade. In the US, beverage can recycling rate is around 55%.


www.imacs.in 38

World Secondary Aluminium Production

Thousand tonnes

Capacity Expans ions

India’s primary aluminium production capacity as at end-March 2014 stood at around 1.8 mtpa,

which represents an increase from 1.2 mtpa at end-March 2008. The increase in both domestic and

international demand has encouraged producers to raise their capacities. Over the next five years

till 2016-17, various projects are expected to result in expansion of alumina capacity by 8.68 mtpa

to 13.3 mtpa. Primary aluminium production capacity is also forecast to increase by 3 mtpa to 4.7

mtpa by 2016-17. To support the forecast aluminium capacity, requirement of alumina is estimated

at 9.2 mtpa. In addition, the bauxite requirement to support forecast alumina capacity of 13.3 mtpa

will be around 40 mtpa. Considering domestic smelting capacity of 9.2 mtpa, around 4 mtpa of

alumina will have to exported.

Hindalco

Hindalco’s Renukoot plant in Uttar Pradesh (UP) was commissioned in 1962 with one

potline and a smelter of 20 ktpa. Over the years the plant has increased its capacity, and at

present the integrated facility comprises a 700 ktpa alumina refinery and a 345 ktpa

aluminium smelter along with facilities for production of semi-fabricated products namely

conductor redraw rods, sheet and extrusions. In 1967 Hindalco established a captive power

plant at Renusagar, the first captive power plant (CPP) for aluminium industry in India. This

along with a co-generation power unit ensures continuous supply of power for the smelter

and other operations.

In 1959, Indal (now acquired by Hindalco) had commissioned the Hirakud smelter and

power complex in Odisha. Primary aluminium production capacity at this smelter has been

expanded from 10 ktpa to 213 ktpa. Work on the smelter expansion from 155 ktpa to 161

ktpa was completed in Q4FY2011. Smelter expansion from 161 ktpa to 213 ktpa along with

100 MW power plant expansion (from 367 MW to 467 MW) has also been commissioned.

5%

10%

15%

20%

25%

30%

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Production-LS

Share of Total-RS


www.imacs.in 39

The next phase is expected to result in further expansion to 360 ktpa along with an

increase in back-up captive power from the initial proposed 467.5 MW to 967.5 MW.

In 1948, Indal/Hindalco had commissioned India’s first alumina refinery at Muri, Jharkhand.

Hindalco has implemented a brownfield expansion of alumina refinery capacity at Muri,

Jharkhand from 110 ktpa to 450 ktpa. Production was ramped up in a phased manner. The

entire steam and power requirement is being met by the new captive power plant (CPP).

The project includes the construction of a new co-generation power plant and railway

system to transport raw materials and finished products.

Hindalco has an alumina refinery at Belgaum, Karnataka. The alumina plant started

operations in 1969 with an initial capacity of 75 ktpa of alumina hydrate and currently

produces around 350 ktpa.

Hindalco is setting up an integrated greenfield aluminium project in Odisha under a

separate company—Aditya Aluminium. The project is estimated to cost Rs. 132 billion. It

comprises a 1,500 ktpa alumina refinery which will be supplied with bauxite by a 4,200 ktpa

bauxite mine located at Kodingamali, which is three kilometres from the refinery. In

addition, the project includes construction of a 360 ktpa aluminium smelter and a 900 MW

CPP in Lapanga. The project commenced operations in 2014. The first metal from the 360

ktpa smelter has already been tapped, and project ramp up has commenced.

Hindalco is implementing the Mahan Aluminium project, which involves building an

aluminium smelter of 359 ktpa capacity alongwith a 900 MW CPP near Bargawan, Sidhi

District of MP. The first metal from the project was tapped in April 2013, and the smelter

produced around 59 kt of aluminium metal in FY2014. For this project, it had erstwhile

allocation to the Mahan coal block through a joint venture (JV) with Essar Power. Hindalco

held a share of about 3.6 mtpa in the coal block. The coal block allocation has now been

cancelled.

Hindalco had also promoted a 55:45 joint venture with Alcan—Utkal Alumina—for setting

up of alumina capacity of 1,500 ktpa at Rayagada, Odisha. It has subsequently acquired the

45% stake of Alcan. The alumina refinery will eventually have a capacity of 2,000 ktpa

within three years of the refinery commencing operations. The refinery will be supplied by

a 4,200 ktpa bauxite mine located nearby. The project is expected to cost Rs. 56 billion. The

company expects output from this alumina refinery to be sufficient to feed alumina to the

Mahan and Aditya smelters. The project is now operational and is in the process of

ramping up. Utkal produced around 277 kt of alumina in FY2014.

Hindalco also intends to build an aluminium smelter at Sonahatu, Jharkhand which is 20

kilometres from its 450 ktpa alumina refinery at Muri. This project will have a capacity of

359 ktpa along with a 900 MW CPP. The land acquisition process has already started. The

Government of Jharkhand has given the water allocation clearance for 55 million cubic

metres (mcm) of water from the Subarnarekha basin. The project was supposed to procure

coal from Tubed coal mine which had been allotted jointly with Tata Power (Hindalco 60%,

Tata Power 40%). Allocation for this coal block has now been cancelled.

Nalco

Nalco has implemented an expansion project at an estimated cost of Rs. 41 billion. The

expansion project raised present installed capacity of bauxite mines (Koraput, Odisha) from

4,800 ktpa to 6,825 ktpa; alumina production capacity (Koraputi, Odisha) from 1,575 ktpa


www.imacs.in 40

to 2,275 ktpa; aluminium production capacity (Angul, Odisha) from 345 ktpa to 460 ktpa;

and power generation capacity (Angul, Odisha) from 960 MW to 1,200 MW.

Nalco now plans to expand its alumina capacity at Koraput by 1 mtpa at a cost of Rs. 45.7

billion which is likely to be completed by 2016. The detailed project report (DPR) is under

evaluation. The project is largely linked to the allotment of Pottangi Bauxite deposits in

favour of Nalco. Pottangi bauxite deposit is reserved by Government of India, in favour of

the company. The matter is being pursued with Government of Odisha to recommend the

allotment in favour of the company.

In its efforts for capacity addition and expansion, NALCO has extensive plans for brown

field and green field expansion projects. These include a greenfield 1 mtpa alumina

Refinery in Gujarat in joint venture (JV) with Gujarat Mineral Development Corporation

(GMDC); 5th Stream of 1 mtpa in existing alumina Refinery at Koraput; a new 0.5 mtpa

aluminium smelter and 1,260 MW Power Complex in Odisha; 0.5 mtpa aluminium Smelter

abroad; and development of bauxite mines at Gudem and KR Konda in Andhra Pradesh

and Pottangi in Odisha etc. Nalco has also announced a long-term plan to 2020, whereby

it plans to invest Rs. 579 billion.

Nalco greenfield 0.5 mtpa aluminium smelter and a 1,260 MW Thermal Power plant is

proposed at Sundargarh district of Odisha at an investment of Rs. 190 billion. The

smelter will be set up in two phase of 250 ktpa each. Alumina will be sourced from

Nalco’s alumina refinery plant in Damanjodi, Odisha at a distance of around 500 km by

rail. The proposal has been cleared by high powered clearance committee of

Government of Odisha. Since the viability of the project hinges on allocation of a

Captive coal block, the company is pursuing with Ministry of coal through Ministry of

Mines for allocation of a coal block through the Government dispensation route.

Nalco has plans to establish a 1 mtpa alumina Refinery in Kutch district of Gujarat in

joint venture with GMDC at an estimated cost of Rs. 60 billion. The DPR for the project

has been prepared.

Nalco also plans to set up a mines and refinery complex in Visakhapatnam district of

Andhra Pradesh (AP) involving an investment of Rs. 56 billion. The proposed complex

will have a 4.2 mtpa bauxite mine and a 1.4 mtpa alumina refinery. The refinery would

be based on the bauxite reserve of Gudem and KR Konda blocks in AP. However, Nalco

is proceeding cautiously on field activities for the proposed mines and refinery project,

primarily because of unfavourable ground conditions in the area.

SSL/Vedanta Resources

Balco: Balco’s aluminium operations comprise of two bauxite mines, two CPPs of 810 MW

(540 MW CPP is used to produce power for captive consumption and the other of 270 MW

is used for commercial purpose), an alumina refinery of 200 ktpa (operations of which have

been suspended since September 2009), a 245 ktpa aluminium smelter and a fabrication

facility, all of which are located in Korba, Chattisgarh. In November 2006, Balco had

commissioned capacity expansion for aluminium production from 100 ktpa to 345 ktpa at

its Korba smelter. The new project with capacity of 245 ktpa uses pre-baked technology

from the Guiyang Aluminium—Magnesium Design & Research Institute (GAMI) of China.


www.imacs.in 41

During FY2009 and until June 5, 2009, Balco also operated the earlier 100 ktpa aluminium

smelter at Korba. The project also included a 540 MW coal-fired CPP to cater to the

enhanced smelting requirement. In response to global economic conditions and a decline

in commodity prices, starting in February 2009, Balco suspended part of its operations at

the 100 ktpa aluminium smelter at Korba. Operations at this aluminium smelter ceased on

June 5, 2009. The surplus power generated by the captive power plants at the Korba facility

is now being sold to the Chattisgarh State Electricity Board (CSEB) and other third parties.

Balco entered into a memorandum of understanding (MoU) with the State Government of

Chhattisgarh on August 8, 2007, for a potential investment to build an aluminium smelter

with a capacity of 650 ktpa at Korba, Chhattisgarh, at an estimated cost of Rs. 85 billion.

The aluminium capacity expansion will be implemented in two phases of 325 ktpa each.

Balco has commenced the implementation process of the first phase of expansion for

setting up a 325 ktpa aluminium smelter at an estimated cost of Rs. 38 billion, which uses

pre-baked technology from the GAMI of China. The associated thermal CPP will comprise

1,200 MW (four units of 300 MW each). Of the 1,200 MW facility being set up, power

generated from two 300 MW units will be utilised in the 325 ktpa smelter, and power from

the balance 600 MW units will be sold to third parties. The CPP is awaiting final stage

regulatory approvals. The project achieved first metal tapping in late-FY2014. Around 84

pots have been commissioned, and further pots will be started after commissioning of

1,200 MW power plant. Balco also received a coal block allocation of 211 mt for use in its

captive power plants in November 2007. These allocated coal blocks are regarded as non-

reserve coal deposits and have been cancelled recently.

SSL: SSL’s aluminium business was earlier operated by Vedanta Aluminium Limited (VAL),

which was merged with SSL. VAL/SSL has an integrated facility at Lanjigarh, Odisha which

includes a 1 mtpa alumina refinery and an associated 75 MW captive power plant. In

addition, SSL has a greenfield 500 ktpa aluminium smelter at Jharsuguda, Odisha together

with an associated 1,215 MW (nine units with a capacity of 135 MW each) coal-based CPP.

Lanjigarh: SSL/VAL started with a 1 mtpa alumina capacity at Lanjigarh, expandable to 1.4

mtpa subject to government approvals, with an associated 75 MW CPP (expandable to 90

MW). In March 2007, VAL began progressive commissioning of this new alumina refinery.

One of the two units of the associated CPP was commissioned in February 2007. The

Lanjigarh alumina refinery produced 267 kt of alumina in FY2008, feeding VR’s captive

requirements. The refinery produced 586 kt of alumina in FY2009. As scheduled, the

second stream of the 1.4 mtpa Lanjigarh alumina refinery was commissioned in March

2010.

Jharsuguda; SSL/VAL Jharsuguda aluminium smelter of 500 ktpa is located in Jharsuguda,

Odisha. Operations in the Jharsuguda facility were implemented in two phases of 250 ktpa

each. The first phase (Plant I) has a production capacity of 250 ktpa and was completed in

November 2009. The second phase (Plant II) of 250 ktpa was commissioned in June 2010.

A total of 9 units of the associated 1,215 MW coal-based thermal CPP of 135 MW each

have been commissioned. The Jharusguda smelter produced 542 kt of aluminium in


www.imacs.in 42

FY2014. SSL is also setting up a 1.25 mtpa aluminium smelter (Plant III) at Jharsuguda.

Power to the new smelter will be provided by a 2,400 MW power plant in Jharsuguda. 50

pots from the first line of this smelter will be commissioned during FY2015. This project is

expected to cost Rs. 145 billion ($2.4 billion). As of March 31, 2014, SSL had spent Rs.

119.51 billion on this project.

Lanjigarh (on hold): VAL had planned to invest Rs. 106 billion to expand its alumina

refining capacity at Lanjigarh to 5 mtpa by increasing the current alumina refinery’s

capacity from 1.4 mtpa to 2 mtpa by de-bottlenecking; constructing a second alumina

refinery with a capacity of 3 mtpa; and constructing an associated 210 MW captive power

plant. However, the expansion of the alumina refinery at Lanjigarh and related mining

operations in Niyamgiri Hills have been on hold since October 20, 2010. Production of

alumina at the refinery at Lanjigarh was temporarily suspended since December 5, 2012,

due to inadequate availability of bauxite and the plant recommenced operations on July

12, 2013. SSL is currently in discussions with government authorities for sourcing adequate

supply of bauxite.

On October 5, 2009, VAL also entered into an agreement with Odisha Mining Corporation

(OMC) for the supply of 150 mt of bauxite to alumina refinery at Lanjigarh from the

Lanjigarh bauxite mine and nearby mines. In November 2007, the Supreme Court of India

(SCI) directed SIL to enter into an agreement with OMC to operate the bauxite mines in

place of VAL. Accordingly OMC and SIL have an agreement to form a joint venture (JV)

company to bauxite from the mines in the name of South West Orissa Bauxite Mining Pvt.

Ltd with 74% and 26% shareholding rights of SIL and OMC, respectively. Besides formation

of JV company for mining for bauxite, OMC and SIIL jointly agreed to the rehabilitation

package as suggested by the SCI when it granted clearance to the mines project.

Accordingly, SIL filed necessary affidavits accepting the rehabilitation package in

compliance with the interim judgment dated November 23, 2007. In accordance with the

court order, the Government of Odisha has formed a special purpose vehicle on October 6,

2009 in the name of Lanjigarh Project Area Development Foundation (LPADF), for the

purposes of the Lanjigarh area development. Mine development has not commenced so

far.

Regarding this project, on August 8, 2008, the SCI granted SIL clearance for forest

diversion proposal for the conversion of 660.75 hectares of forest land from forestry use to

mining use, allowing it to source bauxite which has been mined on the Niyamgiri Hills in

Lanjigarh. Pursuant to the SCI order, Sterlite was required to pay the higher of 5% of

annual profits before tax and interest from the Lanjigarh project and Rs. 100 million per

annum (commencing April 2007), as a contribution for scheduled area development, as

well as Rs. 122 million towards tribal development and Rs. 1,055 million plus expenses

towards a wildlife management plan for conservation and the management of wildlife

around the Lanjigarh bauxite mine. On December 11, 2008, the MoEF granted in-principal

approval under the Forest (Conservation) Act, 1980. On April 28, 2009, the MoEF also

granted environmental clearance for the mining of bauxite. Thereafter, MoEF in a

statement issued on August 24, 2010 refused final approval to the OMC proposal for


www.imacs.in 43

bauxite mining at Niyamgiri hills, in the State of Odisha, following the report of Dr. N.C.

Saxena committee and recommendation of the Forest Advisory Committee, MoEF. Against

this order of the MoEF, OMC filed a writ petition in the Supreme Court (SC) on October 24,

2010. The SC issued a notice on the writ by its order dated April 21, 2011 and directed the

MoEF to file its reply within four weeks. In the meantime, the MoEF by its order dated July

11, 2011, cancelled the environmental clearance granted to OMC for its Niyamgiri mines.

OMC then filed an application in the SC against this order of the MoEF on August 1, 2011.

The MoEF directed VAL to maintain status quo on the expansion of its refinery on October

20, 2010. Thus, the project was put on hold. Against this order, VAL filed a writ petition in

the High Court of Odisha and the court dismissed the writ. VAL then made an application

to the MoEF to reconsider the grant of the environmental clearance for its alumina

refinery. The MoEF by its letter dated February 2, 2012, issued fresh terms of reference to

VAL for preparation of the EIA report which is required to be submitted to the Orissa

Pollution Control Board (OPCB) for public hearing and after incorporation of the response,

submit the final EIA report to the MoEF for environment clearance. SSL submitted the

Environment Impact Assessment report to the OPCB and parallely submitted various

representations to the MoEF as well as the Project Monitoring Group established under the

Cabinet Committee on Investments. The Expert Appraisal Committee of the MoEF

reconsidered the project and revalidated the terms of reference for 22 months effective

January 2014. Therefore the ban imposed on the expansion of SSL’s alumina refinery was

lifted and it is now pursuing the matter with the state government.

On April 18, 2013, the SCI directed the state government of Odisha to place unresolved

issues and claims of the local communities that had served as the basis for MoEF’s order

before the Gram Sabha, a decision-making body of the affected local communities. The

Government of Odisha completed the process of conducting Gram Sabha meetings and

submitted its report on the proceedings to the MoEF. Further the MoEF, based on the

report submitted by the Government of Odisha rejected the grant of stage II forest

clearance for the Niyamgiri project of OMC on January 8, 2014, which is one of the sources

of supply of bauxite to the Alumina refinery at Lanjigarh in terms of the memorandum of

understanding with the government of Odisha (through Orissa Mining Corporation), 150

mt of bauxite is required to be made available to SSL. SSL is now considering to source

bauxite from alternate sources to support the existing and the expanded refinery

operations.

PRICES AND DUTIES

Pr ice Trends and Prospects

India accounts for around 3-4% of the global production for aluminium. So, it hardly influences

aluminium prices on the London Metal Exchange (LME). However, prices on the LME do have an

effect on domestic prices, since, on the one hand, they determine the margins of Indian exporters

and, on the other, influence the landed price of imported metal.


www.imacs.in 44

Over the last 20 years (1995 to 2014), annual average world aluminium prices have averaged

$1,839/t with a high of $2,638/t in 2007 and a low of $1,139/t in 1993. Prices averaged $1,435/t

during 1991-2000. Average prices increased to $2,138/t during 2003-08 primarily because of

strong demand and an increase in energy costs. On a five year basis, average prices were $2,269/t

during 2005-09 and $2,062/t during 2010-14.

Russia is one of the major producers of aluminium accounting for 8-10% of global production.

Before the breakup of the former Soviet Union (FSU), most of the aluminium produced in Russia

was consumed internally. With the collapse of the FSU, the Russian economy contracted drastically

and the country needed to raise currency. This resulted in major reductions in aluminium

consumption in Russia, and the country started exporting most of its production. This created an

oversupply in the world market, reducing prices sharply in the mid-1990s. Although Russia still

exports a substantial part of its production, the share declined from 85% in 1996 to 72% in 2005,

subsequently increasing substantially to 141% in 2013.

Long Term Trends in World Aluminium Prices

$/t

Between 1948 and 2010, data on monthly aluminium prices indicate that contractions have had

longer durations (average of 36.5 months with a range of 15-83 months) than expansions (average

of 24.8 months with a range of 6-52 months). The largest contraction was from the peak of early

1966 to the trough of end-1972. By comparison, the largest expansion was from the trough of

August 2002 to the peak of mid-2008.

Aluminium prices were in a narrow range of $1,300-1,600/t during 1996-2003. However, world

aluminium prices witnessed a sharp increase from late-2002 to 3Q2008 following a surge in global

aluminium demand mainly in China, and a decline in stocks. Aluminium prices on LME increased

from $1,431/t during 2003 to record annual average of $2,638/t in 2007. During 2008, aluminium

-60%

-40%

-20%

0%

20%

40%

60%

80%

500

1,000

1,500

2,000

2,500

3,000

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015F

Price-US$/t (LS)

Growth (RS)


www.imacs.in 45

prices increased sharply to $3,071/t in July 2008, before declining to $2,764/t in August 2008

primarily because of the build-up in inventories, and tightening credit markets. Much of the price

increase was attributable to reduced global production owing to electricity shortages in South

Africa, and severe weather in China that forced many producers to decrease production. Prices also

increased because of increased cost of electricity, which accounts for 30-40% of total input costs.

As energy (and production) costs rise, marginal aluminium producers reduced output, resulting in

lower supplies of aluminium, placing upward pressure on aluminium prices. Prices in mid-2008

were around 30-40% higher than the typical cost of the least efficient producer, and around 60%

higher the cost of a typical producer. However, between August-December 2008, prices declined

52% (or by $1,581/t) to $1,490/t in December 2008. While annual average prices declined 2.5% in

2008 to $2,573/t, quarterly average prices declined 38% from $2,940/t in 2Q2008 to $1,821/t in

4Q2008. Since September 2008, marginal producers cut production as a result of rising input costs

combined with sharp fall in aluminium prices. Because consumption slowed rapidly from

September 2008, production cuts were not been sufficient to support prices.

Annual Trends in International and Domestic Aluminium Prices

per tonne

After a sharp fall till March 2009, aluminium prices increased 63% (or by $844/t) during April-

December 2009. Aluminium prices recovered on Chinese demand, signs of economic recovery

becoming more pronounced, and consumers anticipating rapid future increases in demand.

Aluminium prices were also partially supported by the Chinese Government’s $586 billion stimulus

package and strategic stock building in that country. Stock building, combined with domestic

production cuts, resulted in China becoming a net importer of aluminium in 2009. Despite this

recent increase, average prices declined 35.3% in 2009 to $1,665/t.

During 2010, aluminium prices continued to increase and reached their 19-month highs of $2,317/t

in April 2010, but subsequently declined 9% during May-August 2010 to average $2,118/t in

50,000

70,000

90,000

110,000

130,000

150,000

170,000

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

International-LS

Domestic-RS


www.imacs.in 46

August 2010. In line with other base metal prices, the decline in world aluminium prices mainly

reflected uncertainty surrounding the outlook for world economic growth as a result of two recent

developments—the intention of the Chinese Government to slow its rapid economic growth to a

more sustainable pace and the European debt crisis. In addition, relatively high stocks also placed

downward pressure on aluminium prices. Following a decline till June 2010, aluminium prices

rallied significantly, increasing 18% during August-December 2010. Although aluminium prices

shed some of their gains of 2008, prices in 2010 averaged $2,173/t, which reflects an increase of

30.5% over 2009, but a decline of 17.6% over peak average level of $2,638/t in 2007.

Monthly Trends in International and Domestic Aluminium Prices

per tonne

During 2011, prices continued to increase till April 2011, averaging $2,501/t in 1Q2011. The price

increase was driven by a falling US dollar and growing physical and financial demand for the metal.

Prices increased because of lower metal availability, above-expectations economic growth and

increasing market confidence. In some countries, production outages affected smelters. Cold

weather in China raised power demand in the residential and commercial sectors, forcing utilities

to reduce the volume of electricity available to smelters. This caused the closure of some capacity

and delayed the start-up of new capacity. Further, many smelters in the US, Latin America, Western

Europe and the former Soviet Union remained partly closed and price levels were not considered

high enough to restart production. Following their yearly peak of $2,678/t in April 2011, prices

declined 24.5% during May-December 2011 to average $2,022/t in December 2011. Although

aluminium prices increased 9.6% during 2011 to average $2,401/t, prices declined from $2,611/t in

2Q2011 to $2,094/t in 4Q2011. Lower prices from mid-2011 reflected assumed weaker

consumption growth in the second half of 2011 in most major consuming economies. The market

was oversupplied and stocks rose steadily. There were also significant delays in accessing stocks

owing to the concentration of holdings in LME-registered warehouses in Detroit, US.

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

Sep

-08

No

v-0

8Ja

n-0

9M

ar-

09

May-0

9Ju

l-09

Sep

-09

No

v-0

9Ja

n-1

0M

ar-

10

May-1

0Ju

l-10

Sep

-10

No

v-1

0Ja

n-1

1M

ar-

11

May-1

1Ju

l-11

Sep

-11

No

v-1

1Ja

n-1

2M

ar-

12

May-1

2Ju

l-12

Sep

-12

No

v-1

2Ja

n-1

3M

ar-

13

May-1

3Ju

l-13

Sep

-13

No

v-1

3Ja

n-1

4M

ar-

14

May-1

4Ju

l-14

Sep

-14

No

v-1

4

Avge LME-LS

Ingot Mumbai-RS


www.imacs.in 47

During 2012, world prices declined 15.7% to average $2,023/t. Commodity prices in general

(including aluminium) rallied in early-2012 because of recovering market confidence in response to

the longer-term refinancing operations of the European Central Bank (ECB) and better-than-

expected global growth. Although aluminium prices declined 12.9% (yoy) in 1Q2012, they

increased 4% on a quarterly basis. However, with renewed setbacks to the global recovery in the

beginning of the second quarter of 2012, leading indicators pointed to a synchronised slowing in

the momentum of global activity. These factors affected commodity prices through changes in

current and prospective demand and the cost of carrying inventories. In China, growth had been

steadily moderating as the Government pursued policies aimed at slowing the economy to a more

sustainable pace. Reflecting these policies, growth in industrial production fell to single digits after

April 2012 for the first time since mid-2009. China’s base metals consumption, which had been

steadily increasing and now accounts for more than 45% of global consumption, slowed down in

2Q2012. Aluminium prices fell below $2,000/t during June-August 2012. Prices rebounded from

September 2012 in anticipation of a pickup in economic activity beginning in the fourth quarter of

2012 and the impact of possible stimulus measures in China. Most metal prices picked up from

3Q2012, reflecting a strengthening in Chinese growth during the second half of 2012. On a

quarterly basis, aluminium prices increased 6.7% in 4Q2012, compared with declines of 10.1% in

3Q2012, and 2.1% in 2Q2012. Prices continued to be depressed by the market surplus and have

remained susceptible to fluctuations in the global economic cycle. In addition, prices also declined

because of producers in China restarting operations that were shut down in 2011 in a bid to meet

energy targets.

During 2013, world aluminium prices declined 8.7% to $1,847/t. Prices declined 0.1% (qoq) in

1Q2013, but at a higher rate of 8.2% in 2Q2013. Prices declined 2.9% (qoq) in 3Q2013 to $1,783/t,

followed by a decline of 0.9% (qoq) in 4Q2013 to $1,767/t. Prices continue to be depressed by the

market surplus and have remained susceptible to fluctuations in the global economic cycle. In

addition, prices also declined because of producers in China restarting operations that were shut

down in 2011 in a bid to meet energy targets. Excess stocks also continued to depress prices. LME

stocks exceeded 5 mt from September 2012 as demand remained weak and additional capacity

came on line in China. These stocks had been built up from 2008-09 as aluminium was stocked in

warehouses to reduce excess aluminium from the market. Financial deals continue to be a

dominant factor for LME aluminium pricing. As more than 65% of LME stocks are locked in

financial deals, ongoing low costs of finance and renewed interest from the hedge funds have

increased financial trading of aluminium contracts which is significantly exceeding physical

demand.


www.imacs.in 48

Trends in LME Aluminium Inventory and Prices

During 2014, aluminium prices continued to decline averaging $1,709/t in 1Q2014, or a (qoq)

decline of 3.3%. However, news of further production cuts and supply disruptions (because of

possibility of sanctions against Russia) caused prices to rise during 2Q2014. There was a further

boost in late-March 2014 when the implementation of new LME rules governing load-in and load-

out rates was abandoned. The LME postponed plans from April 2014 to introduce a new scheme

aimed at reducing outbound delivery queues at its warehouses through the introduction of greater

controls on `load-in load-out’ rates. At some warehouses these queues can approach 500 days. The

immediate response was a rally in aluminium prices and premiums. The continuation of existing

LME warehouse `load-in load-out’ rates for the foreseeable future means that these long queues

will remain in place in 2014-15, limiting the availability of metal units to consumers. The boost to

prices remained short lived. As these factors became priced in, the continuing oversupply and high

inventories caused prices to decline 3.3% in May 2014. Aluminium prices started to increase from

June 2014, increasing 17.4% during June-November 2014 to average $2,056/t in November 2014.

On a quarterly basis, prices increased 10.5% (qoq) during 3Q2014 to $1,990/t. Prices increased as

the physical markets outside China continued to show signs of material tightness, primarily

through the escalation in premiums. This was being balanced out a little by more comfortable

supply levels relative to demand in many parts of Asia. LME stocks have declined from 5.38 mt at

end-March 2014 to 4.21 mt at end-December 2014. Cuts in smelter production have intensified

outside China, including the slowing down of smelter expansion programs. Around 1.8 mtpa of

curtailments have been announced. However, expansions in the Middle East have somewhat

countered the effects of these suspensions. Aluminium price fell 7.1% in December 2014 to

$1,909/t because of growing uncertainty about the economic outlook; and more prolonged

duration of the current backwardation in the nearby dates of the forward curve. Prices also fell

because of strong decline in oil prices. The prospect of lower energy prices in future could trigger a

ramp-up of idled capacity in China, which could result in more Chinese aluminium material on the

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

Jan

-09

Mar-

09

May-0

9

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

Mar-

10

May-1

0

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar-

11

May-1

1

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Jul-

12

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

May-1

4

Jul-

14

Sep

-14

No

v-1

4

Avge LME (US$/t)-LS

Inventories (thousand tonnes)-RS


www.imacs.in 49

global markets. On a quarterly basis, prices declined from $1,990/t in 3Q2014 to $1,970/t in

4Q2014. On an annual basis, world prices increased 1.1% in 2014 to $1,867/t. However, average

prices in 2014 were 29% lower than the peak levels achieved in 2007.

Domestic aluminium prices are determined on the basis on landed cost of imported aluminium

besides the cost of production of domestic producers. The high but declining import duties on

aluminium in India keep the landed costs above the international prices. Also, as the gross margin

available to domestic aluminium producers are high, the domestic prices are somewhat lower than

the landed cost of imported aluminium. With the decline in customs duties, the margin between

domestic and international prices has declined.

During FY2009, the improvement in world prices since early-2008 and the rupee depreciation

during Q1FY2009 resulted in a sharp improvement in domestic prices, from Rs. 131.3/kg in

Q4FY2008 to Rs. 144.9/kg in Q1FY2009. Subsequently, the decline in international prices resulted in

average prices declining from Rs. 141.6/kg in Q2FY2009 to Rs. 92.7/kg in Q4FY2009, and to Rs.

93.1/kg in Q1FY2010. Annual average prices declined 5.8% in FY2009 to Rs. 124/kg. During FY2010,

although prices increased to Rs. 117/kg in Q4FY2010, they were 19% lower than the peak levels

prevailing in Q1FY2009. On an annual basis, domestic aluminium prices declined 16% in FY2010 to

average Rs. 104.6/kg. During FY2011, domestic aluminium prices reached their 18-month high of

Rs. 123.94/kg in April 2010, but subsequently declined 11% to average Rs. 110.3/kg in June 2010.

Prices subsequently increased 26% during July 2010-March 2011 to average Rs. 138.6/kg in March

2011. On a (yoy) basis, prices increased 13.2% in Q4FY2011, compared with increases of 13.9% in

Q3FY2011, and 18.3% in Q2FY2011. Domestic aluminium prices increased 17.5% during FY2011 to

average Rs. 122.9/kg. However, annual average prices during FY2011 were 10% lower than the

peak annual average of Rs. 136.6/kg during FY2007.

During FY2012, domestic prices peaked in April 2011, but subsequently declined 8.3% to average

Rs. 127.2/kg in November 2011. Prices thereafter increased primarily because of the substantial

rupee depreciation from early-August 2011. On an annual basis, domestic prices increased 7.6%

during FY2012 to average Rs. 132.2/kg. During FY2013, domestic aluminium prices increased 7% to

Rs. 141.6/kg. On a (qoq) basis, prices increased 2% in 4Q2012, compared with declines of 0.9% in

3Q2012, and 2.1% in 2Q2012. Although prices increased 2% in 4Q2012, the increase was lower

than the 6.7% increase in world prices. The lower increase was primarily because of a 1.9%

appreciation in the value of the rupee vis-à-vis the $.


www.imacs.in 50

Quarterly Trends in Domestic Aluminium Prices

per tonne

During FY2014, domestic prices declined 3.4% in Q1FY2014. However, inspite of a 2.9% (qoq)

decline in world prices, domestic prices increased 6.8% (qoq) in Q2FY2014 because of the sharp

depreciation in the value of the rupee vis-à-vis the $. The rupee however stabilised from

September 2013. As a result, domestic prices increased only 0.3% (qoq) during Q3FY2014 to Rs.

148.9/kg. By comparison, world prices declined 0.9% (qoq) in Q3FY2014. Domestic prices

continued to decline in 2014, declining 0.1% (qoq) in Q4FY2014. On an annual basis, prices

increased 3.2% in FY2014 to Rs. 146/kg. Prices increased 2.5% (qoq) in Q1FY2015 to Rs. 151.7/kg in

response to a 5.3% (qoq) increase in world prices. Domestic prices increased 9% (qoq) in Q2FY2015

to Rs. 165/kg primarily because of an 11.6% (qoq) increase in world prices. During Q3FY2015,

although world prices declined 1% (qoq), domestic prices increased 9% (qoq) to Rs. 172/kg. The

increase was primarily because of a 2% depreciation of the rupee against the US dollar.

In 2015, world aluminium prices are forecast to average around $1,900/t, representing an average

annual increase of 2-5%. Aluminium production growth is forecast to outpace consumption and

result in stocks increasing to 7.5 weeks of consumption in 2015. While high input costs are likely to

support higher prices in 2015, the abundance of spare capacity in China that can respond quickly

to higher prices will moderate any price recovery. Most of the growth in aluminium consumption

will come from emerging economies; while OECD economies are experiencing moderate economic

recoveries their aluminium consumption is still expected to remain below pre-2008/09 levels.

Despite recent production cuts, new smelter capacity against the backdrop of weak demand could

cause prices to remain depressed. While the US, China and India are expected to drive aluminium

demand in 2015, consumption in Europe is forecast to stagnate. Production curtailments

announced in 2013 are expected to have a more noticeable effect in 2014-15 with the loss of a full

year’s production. However, this will only partially offset relatively strong growth in Chinese

production and new onstream capacity in the Middle East. The world, excluding China, could

-60%

-40%

-20%

0%

20%

40%

60%

80%

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,000

1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14

Rs./t (LS)

Yoy Growth-Dom. Prices (RS)

Yoy Growth-LME Prices (RS)


www.imacs.in 51

continue to be in short supply due to shut downs, production curtailments and strong demand in

South America and North America.

Duty Structure

Customs duties on imported aluminium have declined from 35% in March 2002 to 5% at present.

In January 2004, the special additional duty (SAD) of 4% which was also levied on imports of

aluminium was abolished, reducing the effective customs duties levied on all imports. However, the

Finance Act of 2004, which has been in effect since July 8, 2004, levies an additional surcharge at

the rate of 2% of the total customs duty payable which has been further increased to 3% of the

total customs duty payable effective March 1, 2007.

Customs Duties on Aluminium

As of %

28-02-02 35

01-03-02 to 08-01-04 25

09-01-04 to 07-07-04 20

08-07-04 to 28-02-05 15

01-03-05 to 28-02-06 10

01-03-06 to 21-01-07 7.5

22-01-07 onwards 5

India’s primary producers generally sell aluminium at a premium to the LME price, due in part to

the customs duties payable on imported products, and freight, port handling charges etc. The

decline in duty protection has resulted in a narrowing differential between landed and domestic

costs. The reduction in customs duties on non-ferrous metals would keep a check on a rise in

prices, as landed cost of these would effectively reduce, thus reducing the net difference between

landed and domestic costs.


www.imacs.in 52

Trends in International and Domestic Aluminium Prices

Average per tonne

The excise duty in India on aluminium and its products was very high till FY1993. Subsequently it

was reduced to a uniform 15% in FY1996. In FY2000, as part of the process of rationalising excise

duties, the duty on aluminium was increased marginally to 16%. In FY2001, the excise rates were

rationalised for all products across the board to 16%. Excise duty was cut to 14% in 2008, to 10% in

December 2008, and to 8% in February 2009. The excise duty was increased to 10% in the Union

Budget for 2010-11, and to 12% in the Union Budget for 2012-13. In addition, an additional charge

of 3% on the excise duty is payable.

Excise Duty on Aluminium and Aluminium Products

%

Year Metal Foils Sheets Bars/rods Wires

1989 13.6 15.8 15.8 18.9 21

1990 29.2 26.2 15.8 27.3 27.3

1991 29.2 26.2 15.8 27.3 27.3

1992 29 27.5 16.5 38.5 27.8

1993 30.3 28.8 17.3 40.2 29

1994 25 25 15 25 25

1995 20 20 15 20 20

1996-98 15 15 15 15 15

1999-2008 16 16 16 16 16

2008-5.12.08 14 14 14 14 14

6.12.08-23.02.09 10 10 10 10 10

24.02.09 to 26.02.10 8 8 8 8 8

27.02.10 to 16.03.12 10 10 10 10 10

16.03.12 to present 12 12 12 12 12

0

500

1,000

1,500

2,000

2,500

3,000

3,500

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Jan

-06

Ap

r-06

Jul-

06

Oct

-06

Jan

-07

Ap

r-07

Jul-

07

Oct

-07

Jan

-08

Ap

r-08

Jul-

08

Oct

-08

Jan

-09

Ap

r-09

Jul-

09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10

Oct

-10

Jan

-11

Ap

r-11

Jul-

11

Oct

-11

Jan

-12

Ap

r-12

Jul-

12

Oct

-12

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Avge LME (Rs.)-LS

Ingot Mumbai (Rs.)-LS

Avge LME (US$)-RS


www.imacs.in 53

FOREIGN TRADE

Imports

In 1989, following decontrol of the domestic aluminium industry, imports of aluminium and

products was permitted under Open General Licence (OGL). Although domestic aluminium

production exceeds the domestic demand, India imports an average 10-15% of the total domestic

supply of aluminium. Although the landed price of the imported metal exceeds domestic prices,

imports are still necessary because of the shortage of domestically produced ingots. Since most

domestic primary producers have their own downstream capacities, their captive consumption is

significantly high. Thus there is shortage of ingots for standalone secondary producers in India.

India’s Imports of Aluminium and Aluminium Products

Rs. Million Growth

Item 2010 2011 2012 2013 2014 2014 2012-14

Unwrought 20,885 25,405 29,222 37,918 44,807 11.7% 20.8%

Waste and Scrap 23,407 40,706 60,722 73,846 75,689 46.2% 23.0%

Powder and Flakes 163 86 140 244 240 32.2% 40.8%

Bars-Rods and Profiles 2,113 2,795 5,495 7,677 5,389 26.2% 24.5%

Wire 550 709 584 795 1,055 1.7% 14.2%

Pellets, Sheets and strips of thickness

>0.2 mm 7,630 11,715 13,107 18,121 20,120 18.5% 19.8%

Foil 8,045 8,407 16,537 17,015 19,346 27.5% 32.0%

Tubes and Pipes 1,089 1,880 2,415 3,176 3,386 39.5% 21.7%

Tube or Pipe Fittings 272 601 503 234 428 6.3% -10.7%

Structures & Parts of Structures 2,557 3,237 4,563 5,846 6,125 21.5% 23.7%

Reservoirs, Tanks, Vats, etc. 83 167 188 205 213 -8.8% 8.5%

Casks, Drums, Cans, etc. 1,714 1,100 1,537 1,819 1,889 -11.4% 19.7%

Containers for CNG/LPG 47 47 90 136 403 -22.7% 104.5%

Stranded Wire, cables, plaited bands,

and likes 28 36 104 256 102 47.8% 41.2%

Table, Kitchen/other households

articles, etc. 445 658 1,803 1,664 1,395 69.2% 28.5%

Others 3,133 3,672 4,706 5,511 5,735 28.8% 16.0%

Total 72,160 101,220 141,716 174,463 186,322 27.3% 22.6%

Aluminium as % of total

imports 0.53% 0.60% 0.60% 0.65% 0.69%

India’s imports of aluminium and products primarily comprises unwrought items (ingots, billets,

bars, and rods), and scrap. Scrap imports have increased from 236 kt in FY2006 to 722 kt in FY2013.

However, imports of scrap declined to 509 kt in FY2014 because of lower domestic demand.

Imports are primarily from Europe and have been driven by a strong increase in capacity for

melting scrap, particularly in China and India, countries which up to now have only generated low

volumes of domestic scrap. Unwrought (non-alloyed and alloyed) imports have also increased in

volume terms from 184 kt in FY2009 to 215 kt in FY2014. In value terms, imports have increased at

a 3-year CAGR of 22.6% to around Rs. 186 billion in FY2014.


www.imacs.in 54

Exports

India has been exporting a considerable part of its aluminium production. Since the Indian

producers are among the least cost producers of the metal, they have a global cost advantage.

Hence, aluminium is exported at profitable margins. Cost competitiveness has also resulted in an

increasing trend of Indian aluminium exports. Exports witnessed growth at a CAGR of 27% during

FY2012-14.

India’s Exports of Aluminium and Aluminium Products

Rs. Million Growth

Item 2010 2011 2012 2013 2014 2014 2012-14

Unwrought 25,924 30,240 31,569 35,607 51,660 11.4% 19.5%

Waste and Scrap 171 235 503 410 348 62.5% 13.9%

Powder and Flakes 337 484 732 787 835 21.9% 19.9%

Bars-Rods and Profiles 2,399 2,476 2,679 3,131 3,032 -6.1% 7.0%

Wire 287 736 1,635 2,702 2,304 78.6% 46.3%

Pellets, Sheets and strips of thickness

>0.2 mm 4,041 3,795 5,885 7,286 14,291 -3.0% 55.6%

Foil 1,798 1,866 2,450 2,994 3,631 -8.8% 24.9%

Tubes and Pipes 180 205 270 361 570 3.2% 40.7%

Tube or Pipe Fittings 167 147 278 110 100 4.6% -11.9%

Structures & Parts of Structures 783 955 1,419 1,732 1,626 18.0% 19.4%

Reservoirs, Tanks, Vats, etc. 16 7 3 6 6 -39.2% -5.8%

Casks, Drums, Cans, etc. 693 1,190 1,638 2,535 2,358 51.6% 25.6%

Containers for CNG/LPG 22 43 69 81 276 22.9% 85.7%

Stranded Wire, cables, plaited bands,

and likes 5,382 5,145 7,254 10,736 12,310 -1.5% 33.7%

Table, Kitchen/other households

articles, etc. 2,820 2,962 4,252 4,520 4,641 23.3% 16.1%

Others 4,158 6,043 11,391 14,158 18,264 30.6% 44.6%

Total 49,178 56,531 72,025 87,155 116,253 10.5% 27.2%

Aluminium as % of total

exports 0.58% 0.49% 0.49% 0.53% 0.61%

Although India’s aluminium exports have increased at a high rate in recent years, India accounts for

only 1.8% of total world aluminium exports of 20.9 mt in 2013. The low share of India’s exports has

been primary because of domestic capacity constraints. Indian aluminium producers have

furthered expand their production capacities, both for growing domestic market and exports. As a

result, India’s share of world exports have expanded from 0.9% in 2008 to 1.8% in 2013.

A significant proportion of world aluminium production enters world trade with exports accounting

for around 37% of total aluminium production in 2013. The major exporters are Russian Federation,

Canada, Australia, and Norway. Major importers include US, Japan, and Germany.


www.imacs.in 55

World Aluminium Exports and Imports

Thousand tonnes

Thousand tonnes Growth

Country 2009 2010 2011 2012 2013 2013 2009-13

Exports 19,277 20,835 21,727 20,849 20,878 0.1% 0.0%

Russian Federation 4,696 4,876 5,583 5,453 5,258 -3.6% 1.8%

Canada 2,476 2,523 2,486 2,400 2,630 9.6% 0.8%

Netherlands 1,636 2,053 1,895 1,779 2,074 16.6% 1.7%

Australia 1,674 1,692 1,681 1,650 1,541 -6.6% -1.7%

Norway 1,356 1,496 1,429 1,354 1,254 -7.4% -4.6%

Iceland 792 812 761 778 716 -7.9% -1.2%

UAE 130 148 238 613 653 6.6% 42.6%

US 353 449 509 528 515 -2.4% 6.3%

Brazil 754 606 524 524 420 -19.8% -10.9%

South Africa 643 594 593 497 617 24.3% 0.6%

Germany 396 473 435 388 420 8.4% -1.1%

New Zealand 242 319 333 366 301 -17.6% -0.2%

India 278 353 271 316 385 22.1% 14.8%

Imports 18,273 20,486 20,938 20,837 20,705 -0.6% 1.3%

US 3,129 2,766 2,696 2,855 2,897 1.5% -0.2%

Japan 1,958 2,740 2,693 2,751 2,480 -9.9% -4.1%

Germany 1,728 2,392 2,583 2,524 2,503 -0.8% 3.4%

Netherlands 1,544 1,966 2,071 1,959 1,959 0.0% -0.3%

Korea 1,123 1,318 1,318 1,429 1,429 0.0% 5.7%

Turkey 560 743 885 934 990 6.1% 10.6%

Italy 595 920 1,047 845 986 16.7% 2.3%

Mexico 374 557 561 642 642 0.0% 6.9%

China 1,740 365 333 638 481 -24.6% 13.1%

Belgium 449 763 623 562 536 -4.7% -0.8%

Taiwan 426 540 564 553 592 7.0% 3.3%

Thailand 369 489 466 522 558 7.0% 5.0%

Austria 279 418 474 446 392 -12.1% 0.9%

France 398 467 509 412 470 14.1% -1.6%

Norway 336 580 478 339 339 0.0% -5.1%

Spain 257 349 331 315 326 3.4% -2.2%

Hungary 180 312 326 311 319 2.6% 6.8%

India 258 218 230 292 348 19.4% 15.4%

MAJOR COSTS

The two technologies commonly used for aluminium production are the Bayer process (for the

production of alumina from bauxite) and the Hall-Heroult process (for electrolytic reduction of

alumina to aluminium). The key inputs in the manufacturing process are alumina, power and

consumables, such as anodes and caustic soda.


www.imacs.in 56

Bauxite

Bauxite is typically classified according to its intended commercial application, such as abrasive,

cement, chemical, metallurgical, and refractory. Of all bauxite mined, approximately 85% is

converted to alumina for the production of aluminium metal, and an additional 10% is converted

to various forms of specialty aluminas. The remaining 5% is used directly for non-metallurgical

bauxite applications. Worldwide, bauxite is the only raw material used in the production of alumina

on a commercial scale. There are several types of bauxite with alumina content ranging from 35-

60%. At the refinery, bauxite is accepted as raw material and is converted into alumina by a process

called the Bayer process. This includes the digestion of bauxite with caustic soda, clarification of

the liquor stream, precipitation of alumina hydrate and, finally, the calcinations of alumina.

World bauxite resources are estimated to be 55 to 75 bt, located in Africa (32%), Oceania (23%),

South America and the Caribbean (21%), and Asia (18%). World bauxite reserves are presently

estimated at 29 bt. From a geologic point of view, bauxite is a residual rock that formed

intermittently throughout much of the geologic record during periods of intense continental sub

aerial weathering. As such, bauxite formation is the result of distinct climatic and tectonic

conditions favourable for sustaining prolonged weathering processes. Bauxite deposits are

classified in three genetic types (Laterite, Karst, Tikhvin) according to mineralogy, chemistry, and

host-rock lithology. Of all known bauxite deposits, about 88% belong to the laterite-type, 11.5%

are of the karst-type, and the remaining 0.5% are of the Tikhvin type. Laterite bauxites are

developed preferentially on flat-topped plateaus and occur on large continental-scale plantation

surfaces exposed to a tropical monsoon climate.

The ore minerals in bauxite comprise gibbsite, boehnite, and diaspore. Gibbsitic bauxite is the

relatively low concentrate ore, while the other two are comparatively richer. However, of the

bauxite ores mined, the gibbsitic variety is most abundant, whereas boehmitic ore is found only in

small traces, which renders its extraction less economic. The mineralogy of bauxite deposits

controls the efficacy of the Bayer process. Gibbsite is more soluble in caustic soda solution than

boehmite and diaspore. Therefore, gibbsitic bauxite has lower energy requirements than boehmitic

ore at the refining stage whereas diasporic bauxite requires the highest energy. Around 80% of

Indian bauxite contains alumina in the gibbsite form, which requires less power for further

processing. The digestion of bauxite with caustic soda is influenced by the mineralogical

composition of bauxite. Gibbsitic bauxite can be digested at temperatures of 105-145°C at

atmospheric pressure; boehmitic bauxite require temperatures of up to 240°C at high or medium

pressure.

The world-wide geographic distribution of bauxite deposits suggests accumulation of laterite type

bauxite in a number of large provinces such as Australia, the Caribbean, the Guyana and Brazilian

shields in South America, as well as the Guinea Shield and Cameroon in West Africa. Karst-type

deposits are known to occur preferentially in Europe and Jamaica.


www.imacs.in 57

World Distribution of Bauxite Deposits

Guinea has the world’s largest bauxite reserves of 7.4 bt, followed by Australia (6 bt), Brazil (2.6 bt),

Jamaica (2 bt), Guyana (850 mt), and China (830 mt).

World Bauxite Mine Production, Reserves and Reserve Base

mt

Production Reserves

Country 2008 2009 2010 2011 2012 2013

Australia 61.4 65.2 68.4 70.0 76.3 77.0 6,000

China 35.0 40.0 44.0 45.0 47.0 47.0 830

Brazil 22.0 28.2 28.1 31.8 34.0 34.2 2,600

Jamaica 14.0 7.8 8.5 10.2 9.3 9.5 2,000

Guinea 18.5 15.6 17.4 17.6 17.8 17.0 7,400

India 21.2 16.0 18.0 19.0 19.0 19.0 540

Russia 6.3 5.8 5.5 5.9 5.7 5.2 200

Venezuela 5.5 2.5 2.5 4.5 2.0 2.5 320

Suriname 5.2 4.0 4.0 4.0 3.4 3.4 580

Greece 2.2 2.1 2.1 2.1 2.1 2.0 600

Guyana 2.1 1.8 1.8 1.8 2.2 2.3 850

World 205.0 199.0 209.0 259.0 258.0 259.0 28,000

The majority of currently operating bauxite mines contain reserves in the range from 10 to 1,000

mt dry bauxite whereby ore grades vary between 40% and 55%. Accordingly, in-situ alumina

reserves range from 2.5 to 250 mt with most deposits.

At least for the foreseeable future, there is an abundance of bauxite resources and reserves

globally to ensure a readily accessible supply. World bauxite supply estimates, derived from ratios

of known world reserves and world production for a given year (i.e. bauxite reserve life index or


www.imacs.in 58

RLI) indicate adequate bauxite reserves for 106 years. Further, historic trends in the bauxite reserve

life index (RLI) suggests that the pattern is cyclic, with a period of low RLIs followed by a period of

high values. A low of 60 years was recorded in 1969 and a high of almost 400 years in 1980.

India is an important player in the aluminium sector, especially because of its abundant bauxite

reserves. India had bauxite resources2 of 3.48 billion tonnes (bt) as of April 1, 2010. The major

Indian bauxite deposits are located in Odisha (52%), Andhra Pradesh (17%), Gujarat (7%),

Maharashtra and Chattisgarh (5% each).

India’s Bauxite Resources

Million tonnes (mt)

Reserves Remaining

Proved Probable Total Resources Total

Total 321 272 593 2,887 3,480

By Grades

Chemical 2 0 2 12 14

Refractory 26 46 72 21 94

Chemical/Refractory mixed 3 0 3 14 17

Metallurgical-1 185 193 378 1,853 2,231

Metallurgical-2 29 13 42 538 580

Metallurgical mixed 11 5 17 90 107

Low Grade 32 10 42 232 273

Mixed Grade 21 2 23 35 58

Abrasive 0 0 0 2 2

Others 9 3 11 17 29

Unclassified 1 0 1 52 53

Not Known 1 0 1 21 22

By States

Andhra Pradesh 0 0 0 615 615

Bihar 0 0 0 4 4

Chhattisgarh 21 53 74 96 171

Goa 15 1 16 42 58

Gujarat 99 15 114 123 237

Jammu & Kashmir 0 0 0 2 2

Jharkhand 16 20 36 110 146

Karnataka 5 1 6 50 56

Kerala 0 0 0 14 14

Madhya Pradesh 17 3 20 127 147

Maharashtra 14 12 26 149 175

Odisha 132 167 300 1,511 1,810

Rajasthan 0 0 0 1 1

Tamil Nadu 1 0 1 24 25

Uttar Pradesh 0 0 0 19 19

2 Resources are defined as concentration of naturally occurring solid, liquid, or gaseous material in or on the

Earth’s crust in such form and amount that economic extraction of a commodity from the concentration is

currently or potentially feasible.


www.imacs.in 59

At current extraction rates, the two states of Odisha and Andhra Pradesh alone have the equivalent

of over 200 years of Indian requirements. Even using the more conservative the USGS reserve

estimate, India has reserves equivalent to almost 70 years at current output. According to the

USGS, India has the seventh largest reserves of bauxite ore in the world, with total recoverable

reserves estimated at 900 mt. These bauxite ore reserves are high grade and require less energy to

refine, thus resulting in significant cost advantages for Indian aluminium producers.

Though there are 343 bauxite mining leases operating in the country, most of these are small open

cast and manually operated. In all, around 152 producers reported production of bauxite in 2012-

13. Five principal bauxite mines, operated by primary producers, contributed 55% of the total

production. Around 39 major mines, each producing more than 50 ktpa, together accounted for

90% of the total production. These are mostly the captive bauxite mines of the major alumina

producers in the country, and the mines of Gujarat Mineral Development Corporation (GMDC).

Among these, the Panchpatmali bauxite mine of National Aluminium Company Ltd. (Nalco) in

Odisha accounts for about 38% of the country’s production. Except for Nalco, all the other primary

producers do not have adequate bauxite reserves in their mining leases to meet the requirement

of existing capacity of their alumina refineries. These companies are forced to purchase bauxite

from domestic market from small mine owners of the locality. Exploration and development of new

mines has been constrained by issues related to grant of mining lease, environmental clearance,

land acquisition, and forest clearance.

Odisha accounted for 36% of India’s bauxite production during FY2013, followed by Gujarat,

Jharkhand, and Maharashtra (13% each), and Chhattisgarh (12%). About 9.65 mt of the total

bauxite production of 15.36 mt during FY2013 was of grade 40-45%, 1.91 mt was of 45-50% grade,

and 1.14 mt was of below 40% grade.

India’s Bauxite Production

Thousand tonnes

FY 2008 2009 2010 2011 2012 2013

Chattisgarh 1,794 1,674 1,687 2,110 2,392 1,818

Goa 129 463 31 101 85 87

Gujarat 11,923 3,514 2,687 938 847 2,018

Jharkhand 1,250 1,585 1,671 1,856 1,970 2,008

Karnataka 162 128 123 65 83 81

MP 534 1,038 1,057 616 813 822

Maharashtra 1,805 2,054 1,985 2,134 2,286 1,970

Odisha 4,686 4,734 4,880 4,857 5,055 5,460

TN 343 270 3 46 69 96

World 22,625 15,460 14,124 12,723 13,600 15,360

India’s bauxite production has increased from 8.69 mt in FY2002 to an estimated 22.6 mt in

FY2008, but declined to 19.1 mt in FY2014. Indian aluminium producers are one of the lowest cost

producers in the world, primarily because of lower cost of bauxite production. The average cost of

bauxite production in India is $5/t as against the world average of $20-25/t. Around 80% of Indian


www.imacs.in 60

bauxite is highly gibbsitic (i.e. with over 40% alumina) with very low reactive silica, which allows

production of low-cost alumina. Gibbsitic bauxite is found mainly in Odisha and AP, while the

bauxite from captive mines in Bihar, MP, TN and AP contain 15-30% monohydrate alumina.

The alumina plants based in Central India are based on small bauxite deposits scattered all along

Bihar, MP and Maharashtra. In these areas, bauxite deposits/mines are smaller in size and reserves

are limited (few hundred thousands to maximum 10 mt); bauxite occurrence is erratic; silica is

highly variable (2-5%), and alumina content is high (47-50%).

India’s Bauxite Production

FY

While India has 2% of the world's total bauxite deposits, it accounts for 3% of world aluminium

production, which in fact points to significant potential for capacity additions (to meet both

domestic and export demand over the long term). There are no major bauxite supply constraints in

India, and aluminium production is more a function of smelter capacity rather than bauxite

availability.

In India, Nalco is the largest producer of bauxite with estimated production of 6.29 mt in FY2014.

Nalco’s bauxite mines at Panchpatmali hills of Koraput district in Odisha have deposits of 310 mt,

with low silica content of 2%, and high alumina content of 45%. It has recently expanded the

capacity of its bauxite mines from 6.3 mtpa to 6.83 mtpa. Approximately 90% of the Bauxite from

the mine represents Gibbsitic Alumina, also called Tri-hydrate Alumina, a property which allows it

to be digested at a relatively low temperature and at atmospheric pressure during the alumina

refining process. Hindalco obtains bauxite from two major sources: own mines (72% of

requirements) and third party suppliers (28% of requirements), which primarily consist of

independent mines. Balco has two captive bauxite mines at Mainpat and Bodai–Daldali, both in

Chattisgarh. These two mines provide all of its bauxite requirements for its alumina refinery. The

aggregate bauxite extraction limit for the two mines approved by the Indian Bureau of Mines (IBM)

10,957 11,964

12,596

15,733

22,625

15,460

14,124

12,723 13,600

15,360

19,139

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

6,000

10,000

14,000

18,000

22,000

26,000

30,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Production-thousand tonnes-LS

Value-Rs. Million-RS


www.imacs.in 61

is 2 mtpa (comprising 750 ktpa at Mainpat and 1,250 ktpa at Bodai-Daldali). Balco’s Bodai-Daldali

bauxite mines provide a majority of the bauxite required for Balco’s smelters. The mining lease of

its Mainpat bauxite mine expired on July 8, 2012 and Balco has applied for the renewal of the

mining lease for a further period of 10 years from July 2012. Balco has temporarily stopped the

mining activity at Mainpat on account of pending approval from the necessary mining authorities.

As of March 31, 2014, Balco estimates the reserves at Bodai-Daldali to be 2.8 mt and the remaining

mine life to be approximately 2 years based on reserves and planned production. Bodai-Daldali

was commissioned in 2004 by Balco and is renewable mining lease that is valid until March 26,

2017. Balco’s bauxite comprises primarily gibbsite with boehmite and minor diaspore. The average

grade of the bauxite is, at present, approximately 48% aluminium oxide (available alumina is

approximately 43%) and silica levels of less than 4%. Total production at the Bodai-Daldali mine

since the commencement of production has been 4.1 mt of bauxite, with production of

approximately 472 kt in FY2014. The Mainpat mine did not produce bauxite during FY2014 due to

a pending renewal of mining lease and a restriction from removing the mined ore from the mining

site.

Alumina

Broadly, alumina can be classified into:

Standard alumina, which is used for the production of aluminium (90%).

Special alumina, which is used in non-metallurgical applications such as ceramics,

insulators and refractories (10%).

The current domestic production of alumina is fairly sufficient to meet the domestic demand. A

substantial portion of the domestic alumina production is exported as well, primarily by Nalco.

Nalco exports around 50-55% of its alumina production. Nalco’s alumina exports declined in

FY2007 because of lower alumina production caused by disruptions in production. However,

alumina production returned to near normal levels in FY2008-09 resulting in higher exports during

FY2008. Nalco’s alumina exports declined 1% in FY2009 to 852 kt primarily because of higher

domestic requirement. Exports further declined to 640 kt in FY2011. However, exports increased to

944 kt in FY2013 and 1,309 kt in FY2014 caused by lower domestic utilisation. Hindalco was earlier

producing alumina primarily for further processing into primary aluminium and value-added

products. However, following the capacity expansion for alumina from 350 ktpa in FY2003 to 660

ktpa in FY2004, and further to 1,500 ktpa at present, Hindalco substantially increased its alumina

sales. Hindalco’s alumina production was around 1.6 mt in FY2014. Considering that it produced

404 kt of primary aluminium in FY2014, nearly 50% of its alumina production was available for

outside sale. SSL’s alumina production at Lanjigarh was estimated at 524 kt in FY2014.

Given that the domestic alumina consumption is increasing at a high rate and the industry is

currently operating at high capacity utilisation, the likely rise in aluminium production is expected

to exert pressure on alumina supply and exports as well.


www.imacs.in 62

Nalco’s Alumina Production and Exports

Thousand tonnes

FY 2008 2009 2010 2011 2012 2013 2014

Capacity 1,575 1,575 1,575 1,575 2,100 2,100 2,100

Production 1,576 1,577 1,592 1,556 1,687 1,802 1,925

Exports 860 852 703 640 793 944 1,309

Exports as % of Production 54.6% 54.0% 44.1% 41.1% 47.0% 52.4% 68.0%

The domestic producers have the option to limit alumina exports and divert the same to meet their

aluminium production requirements. However as margins have remained healthy in the export

market for alumina, the alumina producers have chosen to undertake capacity expansions in

alumina instead, for supply in domestic and overseas markets. Alumina imports are primarily by

Balco.

While till the 1960s, alumina refineries used to be located near smelters, currently the refineries are

close to bauxite mines. This shift has been prompted mainly by rising transportation and energy

costs, besides the need for refining plants to have long-term contracts with mines (the refineries

are usually designed for bauxite of specific composition).

Power

Aluminium production can be split into primary aluminium production and recycling. Primary

production is about 20 times as energy intensive as recycling and represents the bulk of energy

consumption. The production of primary aluminium relies on an electrolytic process and is highly

electricity-intensive.

Primary aluminium is produced in three distinct steps: bauxite mining, alumina refining and

aluminium smelting.

Energy consumption in bauxite mining ranges from 40 megajoules (MJ)3 per tonne ore to 470 MJ/t.

Virtually all alumina is produced in the Bayer process, a combination of an extraction (digestion

with caustic soda) and a calcination process. Fuel consumption of a Bayer plant can vary between

10-15 GJ/t of alumina. This could be reduced to 9.5 GJ/t through better heat integration, further

deployment of co-generation and improved co-generation systems. In alumina production, the

average energy intensity of alumina refineries was 14 GJ/t of alumina in 2011, with a range among

different world regions between 9 GJ/t in Latin America and 16.6 GJ/t in China. Data from the

International Aluminium Institute (IAI) show that the specific energy consumption of alumina

refining declined by 0.7% per annum between 2002-13, as compared with an increase of 1.3% per

annum during 1991-2000. Most of the energy consumed in alumina refineries is in the form of

steam used in the main refining process. The calcining (drying) of the alumina also requires large

3 Joule (J) is the SI unit of energy. 1 Kilojoule (KJ)= 1,000 joules (10

3 joules); Megajoule (MJ)=1,000 KJ (10

6

joules); Gigajoule= 1,000 MJ (109

joules); Terajoule (TJ)=1,000 GJ (1012

joules); Petajoule (PJ)=1,000 TJ (1015

joules); Exajoule (EJ)=1,000 PJ (1018

joules), Zettajoule (ZJ)=1,000 EJ (1021

joules). The conversion equivalent

between the calorie and the joule is the International Steam Table (IT) value which is defined to be 4.1868

joules per calorie.


www.imacs.in 63

amounts of high temperature heat. Because of their high demand for steam, modern plants use

combined heat and power systems (CHP) systems. World alumina production was around 107 mt

in 2013. Total energy consumption was estimated at 14.1 EJ.

Long-Term Trends in Energy Used of Metal lurgical Alumina Produced

MJ/t

The above stated figures do not include full coverage of China. Bauxite produced in China is mainly

boehmite. Many Chinese bauxite deposits have high silica content and so are of a low grade. These

require a more complex refining process. Only 14% of China’s alumina output is currently

produced by the standard Bayer process; the remainder uses a combination of sintering and part

of the Bayer process. The energy intensity of such combined processes ranges at 24-52 GJ/t of

alumina making them between two and four times more energy intensive than the ordinary Bayer

process4.

4 In October 2007, China’s National Development and Reform Commission (NDRC) implemented new

standards that must be met for permits to be issued for bauxite mines, alumina refineries, primary aluminium

smelting operations, secondary aluminium and aluminium process plants. The standards cover a range of

elements, such as scale of production, minimum size of plants and furnaces, technology to be implemented,

resource use, as well as water and energy consumption. For bauxite mining, overall energy consumption must

be less than 25 kg of coal equivalent per tonne produced for underground mining, and less than 13 kg for

above-ground operations. For alumina refining, energy consumption for newly built Bayer method operations

must be less than 500 kg of coal equivalent per tonne of alumina, and the recovery rate at least 81%. For

other methods, the consumption is limited to 800 kg of coal equivalent per tonne, with a recovery rate of at

least 90%. For primary aluminium, new and upgraded smelters must consume less than 14,300 KWh/t of

primary aluminium, with electrical efficiency over 94%. For existing smelters, energy consumption is limited to

14,450 KWh/t with 93% electrical efficiency. For aluminium processing, energy consumption for new facilities

is limited to 350 kg of coal equivalent or 1,150 KWh/t of finished product. For existing facilities the limit is 410

kg of coal equivalent or 1,250 KWh/t.

8,000

13,000

18,000

23,000

28,000

33,000

38,000

43,000

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

World North America

South America Europe

Oceania China


www.imacs.in 64

The production of 1 kg of aluminium requires about 2 kg of alumina. The main energy use in

aluminium production is related to the electrochemical conversion of alumina into aluminium. The

main cell-types are Soderberg, which uses in-situ-baked electrodes, and the Hall-Héroult process,

which uses point feed pre-baked (PFPB) electrodes. The Hall-Héroult electrolysis process is a

mature technology, but gradual improvements of its productivity and environmental performance

are still possible.

Total final energy use by industry reached 143 EJ in 2011 or 2,509 million tonnes of oil equivalent

(mtoe), up 36% since 2000. The increase is largely fuelled by rising materials demand in non-OECD

countries, which now use 66% of industrial energy, up from 50% in 2000. Industrial CO2 emissions

grew by 17% between 2007 and 2011. must be reversed: from 2007 to 2011, emissions grew by

17%. Substantial potential to further improve energy efficiency exists. By applying current best

available technologies (BATs), the technical potential to reduce energy use in the cement sector is

18%, 26% in pulp and paper, and 11% in aluminium. These potentials are unlikely to be fully

tapped over the next 10 years due to slow turnover of capacity stock, high costs and fluctuation in

raw material availability.

The five most energy-intensive industry sectors—iron and steel (22%), iron and steel (26 EJ),

cement (11 EJ), chemicals and petrochemicals (36 EJ), pulp and paper (6 EJ), and aluminium (4 EJ)—

account for over 65% of total industrial energy consumption. These sectors consume about three-

quarters of all fossil fuels used in industry and are responsible for an even higher share (78%) of

total industrial CO2 emissions. The aluminium industry is highly electricity-intensive. Primary

aluminium smelters use around 4% of global electricity consumption. In total, the aluminium

industry emits 0.4 Gt CO2-equivalent of greenhouse gases, including process emissions and

indirect emissions from electricity production, equivalent to just under 1% of total global

greenhouse-gas emissions.

Electricity consumption for Soderberg smelters is about 15.1-17.5 kilowatt hour (KWh)/kg (or 60 GJ

of electricity per tonne) of aluminium, while point PFPB Hall-Héroult smelters use 13.6-15.7

KWh/kg (or 50-55 GJ of electricity per tonne). The theoretical minimum energy use is about 6

MWh/t. More than 80% of primary aluminium production is now from smelters using modern pre-

baked anodes although some facilities still use an older Soderberg technology with in situ baked

anodes. The current aim of the IAI’s members is to retrofit or replace existing smelters in order to

reduce electricity consumption to 14.5 KWh/kg of aluminium in the short term, with further

reductions thereafter. New world-class plants can achieve around 13.5 KWh/kg or a saving of 12%

compared to the current world average.

The difference in efficiency between the best and worst plants is approximately 20% and can be

attributed to different cell types and to the size of the smelters, which is generally related to the

age of the plants. The global average consumption was 14,560 KWh/kg of aluminium in 2013.


www.imacs.in 65

Long-Term Trends in Energy Used per Metric Tonne of Primary Aluminium

Production

KWh/t

China’s aluminium producers are amongst the most efficient due to new production facilities. The

level of capacity growth in China has caused an acceleration in the rate of improvement in global

energy efficiency for the sector to about 0.7% per annum over the period 2006 to 2012.

Energy efficiency of smelters in Asia, Africa, and Latin America are higher than in Europe and North

America. This is because plants in Asia and Latin America are newer and new plants are typically

based on the most efficient technology available, regardless of location. As a result, a country with

relatively new capital stock will be more energy-efficient than a country with a more mature stock.

Older aluminium smelters are mostly located in developed countries and newer plants tend to be

built in developing countries and emerging markets. As the smelters in developing countries

matures, and older stock is replaced in industrialised countries, differences in energy efficiency

among regions are expected to diminish.

There are several technologies available for primary aluminium production, each with different

energy use and general emission profiles. However, as approximately 25-35% of total costs in an

aluminium plant are related to electricity costs, there is a significant economic incentive to ensure

that new plants are as energy-efficient as possible. In fact, high electricity prices in Europe have led

some aluminium producers to consider closing operating European aluminium plants. An

important consideration in the choice of location for new power plant is the availability of large,

cheap power resources, with raw materials brought by boat sometimes over long distances.

As noted, the PFPB process is an electricity-efficient aluminium smelting technology, with new

plants estimated to require 13,300 KWh/t of aluminium produced, compared with 16,600 KWh/t for

the older Soderberg technologies. The PFPB technology is the most widespread technology for

12,000

13,000

14,000

15,000

16,000

17,000

18,000

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Oceania Asia (excl. China)

GCC China

North America South America

Europe World


www.imacs.in 66

aluminium smelting worldwide, and is becoming more so, as all new plants constructed after 1970

and most plant expansions are based on this technology. Technological developments as well as

an increased share of production from PFPB technologies has led to a significant reduction in

average electricity-intensity for aluminium production in all world regions between 1980 and 2006.

These trends should continue with the continuing phase-out or retro-fitting of the side work pre-

bake and the above mentioned Soderberg technologies. The industry plans to retrofit or replace

existing smelters in order to reduce electricity consumption to 14,500 KWh/t (52.2 GJ/t) in the short

term, and to 13,500-14,000 KWh/t (49-50 GJ/t) as new smelters are built and older ones are retired.

New world-class plants achieve 13,000 KWh/t. Technologies under development such as drained

cells (drained cathodes) and inert anodes offer the promise of further smelter efficiencies.

In addition to being a major electricity user, the industry is also a significant source of process

carbon dioxide (CO2) emissions (from the consumption of carbon anodes) and of perfluorocarbons

(PFCs). PFCs are formed when the level of dissolved aluminium oxide in the cell drops to a point

where the electrolytic bath itself begins to undergo electrolysis. PFCs are potent global greenhouse

gases and have long atmospheric lifetimes. For example, one kg of PFC (CF4) is equivalent to 6,500

kg of CO2. In 2005, the industrial processes (mining, refining, smelting and casting) of the primary

aluminium industry were directly responsible for emitting 140 mt of CO2-equivalent (CO2e). Of

this, around 30 mt originated from two PFC—tetrofluormethane (CF4) and hexofluormethane

(C2F6). On average, the smelting process produces 1.6 t of CO2/t of aluminium (from the

consumption of the carbon anodes) and the equivalent of an additional tonne of CO2 from PFC

emissions. In recent years, the aluminium industry has put considerable efforts into reducing PFC

emissions through the use of improved process controls and the phasing-out of older technologies

(in particular SWPB, VSS and HSS cells). As a result, average PFC emissions per tonne of aluminium

were reduced. The global aluminium industry has reduced its PFC emissions per tonne of

production from 4.93 t CO2e/t in 1990 to 0.47 t CO2e/t in 2013. Reported average PFC emissions

per tonne of production have been reduced by 36% between 2006 and 2012. However, there is still

a considerable range of performance between facilities using the same cell technology. This

suggests that there is scope for further reducing PFC emissions in the future. The global aluminium

industry has a voluntary objective to reduce its PFC emissions per tonne of aluminium produced by

50% between 2006 and 2020, equivalent to a 93% reduction from 1990. The development of inert

anodes could end CO2 emissions stemming from the use of carbon anodes and also eliminate

emissions of PFCs from the electrolysis process. Electricity consumption could also be reduced, but

the technology is suited only for new smelters, because the cell design has to be changed

fundamentally. Although inert anodes have been the subject of research for many years, it has not

reached commercial scale. Present forecasts envisage deployment to start between 2015 and 2020

with full commercialisation by 2030. The net effect of successfully deploying inert anodes could be

a reduction in electricity consumption of 10-20% compared to advanced Hall-Héroult smelters, i.e.

from 13 KWh/kg to 11 KWh/kg of aluminium. Apart from the electricity savings, oil and coal

consumption would be reduced by 18 GJ/t of aluminium, because the use of carbon anodes would

be avoided. The electricity consumption for the chemical reaction to produce aluminium would

increase, but the aluminium cell could be redesigned to reduce electricity losses. The so-called

bipolar cell design, which requires inert anodes, is a typical example of a breakthrough technology

that could be rapidly adopted once it was commercially proven.


www.imacs.in 67

The smelting of primary aluminium employs an electrolytic reduction process that requires a large

and continuous supply of electricity. Interruptions of electricity supply can result in lengthy

production shutdowns, increased costs associated with restarting production, and waste of

production in progress. In extreme cases, interruptions of electricity supply can also cause damage

to or destruction of the expensive equipment and facilities. Pots cool off if they are deprived of

electricity for six consecutive hours, which could cause the molten aluminium in the pot to solidify.

Thus, any interruption in the supply of electricity to aluminium smelters lasting longer than six

hours can cause substantial damage to smelters.

Because of the critical importance of uninterrupted electricity supply, all domestic aluminium

producers have set up CPPs instead of relying on commercial power, which is both costly and

erratic. Nearly 97% of electricity consumed is produced from captive sources, primarily from coal-

based plants (99% of total capacity). The balance is based on diesel.

Indian manufacturers are competitive on power costs, which accounts for around 25-30% of

operating cost. The global average power consumption in 2013 was around 14,560 KWh/t of

aluminium. About 80% of India’s primary aluminium production is based on modern pre-baked

technology. As a result, Indian producers compare favourably to the most efficient primary

producers in the world. However, most of the energy consumed is in the form of electricity. Most

of electricity is internally generated and produced from coal-fired plants. As a result, India’s

production of primary aluminium is one of the most CO2 intensive.

Electrici ty Consumption

FY, KWh/t

Because their plants are newer, Nalco and VAL have lower power consumption, consuming 14,754

KWh/t and 14,226 KWh/t of aluminium, respectively in FY2014. By comparison, Hindalco’s power

consumption was 16,383 KWh/t. Hindalco has recently converted its pots at Hirakud from

Soderberg to pre-baked thereby reducing unit power consumption. Balco has higher power

consumption per unit because its older 0.1 mtpa aluminium smelter at Korba (Chattisgarh) uses

12,000

13,000

14,000

15,000

16,000

17,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

Hindalco Nalco SSL


www.imacs.in 68

Soderberg technology. However, its new 245 ktpa aluminium smelter uses PFPB process. The

relatively high cost of operation of Balco’s 0.1 mtpa smelter and the steep decline in prices had

made its operations unviable, and consequently operations at the smelter ceased in June 2009.

Malco had the highest consumption primarily because its smelter used Soderberg technology. This

smelter also ceased operations from late-2008. SSL-Jharsuguda has introduced a range of energy

and carbon emission

reduction steps including the reduction of smelter specific direct current energy consumption

through the implementation of slotted anodes. At Balco, automation in the melting furnace and

cooling tower resulted in saving of 750,000 GJ in FY2014.

The captive units of Nalco, Hindalco and SSL have power generating cost of around Rs. 2-3/KWh.

However, these costs have increased in recent years primarily because of an increase in price of

coal and diesel.

Long-Term Trends in Coal Purchase Costs

Rs./t

Their cost of captive power generation is only 30-40% of electricity costs from the grid. Domestic

producers rely on low-cost captive sources of power to meet almost all of their electricity

requirements. The unit power cost of Indian producers is low because of location of captive coal

plants in close proximity to coal deposits, and access to cheaper though lower quality coal.

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011 2012 2013 2014

Nalco

Hindalco

SSL


www.imacs.in 69

Average Cost of Aluminium Production Per Unit of Power

Rs./KWh

FY 2008 2009 2010 2011 2012 2013 2014

Own

Nalco 1.29 1.82 1.89 2.31 2.82 3.11 2.79

Hindalco 1.09 1.08 1.26 1.43 1.65 1.83 1.95

SSL 2.47 2.22

Total

Nalco 1.31 1.87 1.96 2.36 2.90 3.16 2.79

Hindalco 1.20 1.15 1.35 1.54 1.80 1.96 2.08

SSL 2.54 2.23

Share of Captive Power

Nalco 99.2% 97.7% 97.4% 98.4% 98.0% 98.5% 100.0%

Hindalco 96.0% 97.6% 97.2% 97.1% 96.6% 96.8% 96.8%

SSL 99.6% 99.8%

For example, Hindalco’s largest power plant at Renusagar (near its integrated aluminium complex

at Renukoot) is located on the pithead of its sourcing coal mine, which provides it with significant

cost advantages in generating power for use in facilities. Its other power plant, at Hirakud, has a

dedicated coal mine. HIL’s coal production for captive usage aggregated around 2.24 mt in FY2013

(solely from Talabira Block in Odisha), and has remained in the range of 2.2-2.4 mt. Till 2007, Balco

did not have its own coal mines and its CPPs were dependent on coal from Coal India Limited (CIL)

and its subsidiaries. During FY2006-07, a shortage of coal led CIL to reduce the amount of coal

supplied to Balco, forcing Balco to utilise higher-priced imported coal, thereby increasing its power

generation and aluminium production costs. At present, around 90% of Balco’s coal requirements

are met by CIL. Balco had received a coal block allocation of 211 mt for use in its captive power

plants in November 2007. However, production has not started so far. Although Nalco relies on

coal supplies from CIL and its subsidiaries, it has been recently allotted a coal mine at Talcher,

Odisha for captive usage, for which it has now received prior approval for a mining lease. The Utkal

E Coal Block allotted to Nalco has geological reserves of 194 mt, and mineable coal reserves of

around 70 mt. The coal block is likely to be operational by end-2014.

Coal Blocks Allocated to Primary Aluminium Producers

Company Block State Geological

Reserves

(mt)

Date of

Allotment

End-Use

Hindalco Talabira-1 Odisha 22.55 25-02-1994 Power

Hindalco Talabira-II Odisha 152.33 10-11-2005 Power

Hindalco/Essar Mahan MP 144.20 12-04-2006 Power

Hindalco Tubed Jharkhand 189.00 01-08-2007 Power

Nalco Utkal E Odisha 194.00 27-08-2004 Power

Balco Durgapur/Tarai Chattisgarh 211.37 06-11-2007 Power

The primary producers had an earlier allocation of 5 coal blocks with geological reserves of around

900 mt. Except for Hindalco’s Talabira Block, production had not started in any of the other coal

blocks allocated to primary producers. Hindalco’s coal production from its coal block was around


www.imacs.in 70

2.3 mt. Coal consumption of primary aluminium producers was around 27 mt in FY2014. Coal from

outside sources was primarily procured through e-auction by Cola India Limited (CIL).

During the period 1993 to 2011, a total of 218 coal blocks were allocated to eligible public and

private sector companies in pursuance of Section 3 of the Coal Mines (Nationalisation) Act, 1973.

Out of these 218 blocks, 40 coal blocks have started production. The allocation of coal blocks was

challenged before the Supreme Court of India (SCI). The SCI in its judgment dated August 25, 2014

and order dated September 24, 2014 has declared all allocations of the coal blocks made through

Screening Committee and through Government Dispensation route since 1993 as arbitrary &

illegal. It has therefore cancelled the allocation of 204 coal blocks out of 218 coal blocks (i.e. except

Tasra coal block allocated to Steel Authority of India Ltd. and Pakri Barwadih coal block allocated

to National Thermal Power Corporation and 12 coal blocks allocated for Ultra Mega Power

Projects). In case of 42 coal blocks (37 producing and 5 likely to come under production),

cancellation shall take effect from March 31, 2015. Thus, the allocation of coal blocks to primary

aluminium producers now stands cancelled. In the case of Hindalco’s Talabira-I coal block where

production had commenced, the cancellation shall have effect from March 31, 2015 subject to

payment of an additional levy of Rs. 295/t of coal extracted from beginning till March 31, 2015.

Pursuant to the orders of the Supreme Court, the Government of India has promulgated the Coal

Mines (Special Provisions) Ordinance, 2014 on October 21, 2014, which inter alia provides for

allocation of cancelled coal blocks by way of auction and bidding process. The ordinance also

provides for payment of compensation to prior allottees towards investments made in `land and

mine infrastructure’’ for which details have already been submitted to the Ministry of Coal.

Reallocation of coal blocks will now be made in pursuance of the provisions of the Coal Mines

(Special Provisions) Ordinance, 2014 and the Rules made thereunder in a time bound manner to

ensure that there is no disruption in supply of coal. As per the Ordinance, allocation of Schedule –II

and Schedule –III coal mines is to be made for specified end-use. Based on the recommendations

of the Technical Committee constituted to formulate criteria and classify coal mines/coal blocks for

auction and allotment, a list of coal blocks earmarked for auction and allocation with their specified

end-use has been issued on December 18, 2014. The Government has also formulated an

Approach Paper for auctioning of coal mines which includes the proposed time schedule of the

bidding process.

Of the 204 de-allocated blocks, the Government is likely to initiate redistribution, through

auctioning or allocation, of the 42 operational blocks before March 31, 2015, after which mining

would not be allowed by the prior allottees. These 42 blocks have a rated mine capacity of 81

mtpa. Additionally, the Government has further identified a list of 59 blocks (which have achieved

substantial progress thus far) and has initiated the process of re-distribution. The initial list of 101

coal blocks put up for auction or allotment has been classified into `non-regulated’ (for iron &

steel, cement, & captive power plants) and `regulated’ (for power sector). For the `non-regulated’

sector, the forward auction method would be applicable, where the highest bidder would be

offered the block. For the power sector, the reverse auction method would be applicable, where

the lowest bidder would win the block.


www.imacs.in 71

In the first pool of 101 blocks, the Government has allocated 67 blocks with geological reserves of

14.7 bt for the power sector. For the non-regulated sector, 34 blocks have been identified with

reserves of 2.8 bt. The non-regulated sectors which have been impacted the most include steel

(allocated 20% of reserves earlier), commercial mining by State Government entities (allocated 14%

of reserves earlier), and aluminium (for captive power generation). For these 101 blocks with

geological reserves of 17.5 bt, coal blocks with geological reserves of around 3.2 bt, which were

earlier allocated to the `non-regulated’ sector, are now reserved for the power sector. Moreover,

given the urgency of getting coal blocks, and with all the non-regulated sectors being clubbed into

one group, competitive bidding in the upcoming auctions is expected to be intense.

Allocation of the four coal blocks to Hindalco has been cancelled. Hindalco’s three coal blocks at

Talabira and Tubed have now been reserved for allocation to the power sector, and Hindalco will

not be eligible to bid for these blocks. Hindalco’s erstwhile coal block at Mahan had not

commenced production prior to the cancellation. However, under the new allocation rules, this

block has been reserved specifically for power sector. Hindalco had planned to use this block as a

source of captive coal for its new aluminium smelter plant in MP. Hindalco and Essar had been

allocated this coal block through a joint venture—Mahan Coal Ltd. (MCL). MCL was to supply coal

Essar’s 1,200 MW power project and Hindalco’s new 359 ktpa smelter. The targeted capacity of the

coal production from Mahan coal block was 8.5 mtpa out of which 5.1 mtpa was to be supplied to

Essar and 3.4 mtpa was to be supplied to Hindalco. Hindalco will now not be eligible for bidding

for this block and will have to bid for mines falling under the `non-regulated sector’ near its plant

in Bargawan, MP. However, the freight costs could increase if it gets a mine at a considerable

distance from its proposed smelter. All alternative coal blocks available to Hindalco are located at a

distance of between 100 km and 700 km from its existing smelters in Madhya Pradesh and Odisha,

which could cause an increase in freight costs. Hindalco will also have to spend considerable

amount on new coal blocks, with gestation period of 3-5 years. In the interim, Hindalco will have to

rely on outside procurement of coal.

Nalco’s Utkal coal block allocation will also be cancelled. Coal production has so far not

commenced from this coal block. Nalco has claimed considerable progress in developing the coal

block and has reported 60-70% land acquisition for the project. It also has claimed an investment

of Rs. 1 billion so far in the development of the coal block. Balco’s coal block allocation at

Durgapur/Tarai (Chattisgarh) has also been cancelled.

Other Consummables

Caustic Soda (NaOH)

Caustic Soda is used in the refining of bauxite. It is a key raw material used to dissolve the bauxite

in the alumina refining process. The caustic soda requirement varies significantly depending on the

bauxite quality and technology employed. In the Bayer process, caustic soda is used to extract the

alumina content from ground bauxite, at temperatures suitable for the particular mineralogy of

bauxite, after which the resultant sodium aluminate solution is separated from the undissolved

residue called red mud. The solution is then subjected to seeded precipitation to produce alumina

hydrate, which is then calcined into alumina.


www.imacs.in 72

Calcined Petroleum Coke (CPC)

Calcined Petroleum Coke is used in the electrolysis process to make aluminium. Around 0.4–0.5

tonne of CPC is required to produce one tonne of aluminium. CPC is manufactured by calcination

of raw petroleum coke, which is in turn a refining by-product.

Coal Tar Pitch (CTP)

Coal Tar Pitch is used in the electrolysis process to rejuvenate pre-baked and Soderberg anodes as

they get used up in the smelting process. Around 0.1–0.2 tonne of CTP is required to produce one

tonne of aluminium.

Aluminium Fluoride

Aluminium fluoride is used as a flux to reduce bath resistivity in the smelting process. Around 0.2–

0.03 tonne of aluminium fluoride required to produce one tonne of aluminium.

Fuel Oil

Fuel oil is used both in alumina plants for conversion into aluminium and in power plants to

generate power.

Steam Coal

Steam coal is used both in the conversion of bauxite into alumina and for the generation of

electricity. Since coal-based plants account for nearly 100% of captive power generation capacity

by aluminium producers in India, coal is the principal input for coal-based captive thermal plants

set up by aluminium producers. The GoI owns most of the coal mines in India, through its

subsidiary, CIL. Users are provided with their coal under fuel supply agreements. The price and the

quantity entitled by users are established by the Standing Linkage Committee (Long-Term) of the

Ministry of Coal. These user allocations are reviewed on a quarterly basis by the Ministry of Coal.

Although aluminium producers do not experience major difficulties in obtaining a sufficient

amount of coal on reasonable terms in the past, the shortage of coal has resulted in the Ministry of

Coal reducing entitlements under various supply agreements.

Anthracite Coke

Anthracite coke is used for the manufacture of carbon blocks, which are used as lining in

aluminium blast furnaces.

FINANCIAL PERFORMANC E

As discussed earlier, production costs for Indian aluminium manufacturers are among the lowest in

the world. Bauxite mining costs are lower in the country by global comparison because of the

abundance of bauxite reserves, the favourable location of such reserves, and the availability of


www.imacs.in 73

cheap labour. Moreover, domestic producers rely on lower-cost captive sources of power to meet

almost all of their electricity requirements. However, they primarily use coal and diesel in power

generation, the costs of which have risen substantially in recent years. This has resulted in

significant increase in energy costs, as energy consumption per unit of production has remained

stable. The table below details the operating and net margins of primary aluminium producers over

the last few years.

Operating Margins and Return on Capital Employed (ROCE) of Domestic

Aluminium Producers

FY 2009 2010 2011 2012 2013 2014

PBIT Margins

Sterlite Industries 15.7% 12.4% 14.3% 5.1% 2.2%

SSL 5.6%

Hindalco 28.4% 25.3% 25.2% 20.2% 10.6% 9.3%

NALCO 20.0% 1.3% 12.3% -0.3% -2.2% 6.0%

ROCE (Aluminium)

Sterlite Industries 14.2% 7.1% 7.2% 2.1% 0.9%

SSL

Hindalco 26.0% 18.4% 15.2% 9.2% 3.3% 2.7%

NALCO 34.0% 2.0% 21.0% -0.5% -3.0% -5.9%

During Q2FY2015, Hindalco’s operating revenues from aluminium business increased 41.5% to Rs.

33.16 billion primarily because of stronger growth in prices. Higher growth in operating costs

resulted in an 104% increase in PBIT for aluminium business to Rs. 3.39 billion in Q1FY2015. PBIT

margins from aluminium business have improved substantially from 6.9% in Q3FY2014 to 10.2% in

Q1FY2015.

Yoy Growth in Revenues from Aluminium Business

-60%

-40%

-20%

0%

20%

40%

60%

80%

Q1FY10 Q3FY10 Q1FY11 Q3FY11 Q1FY12 Q3FY12 Q1FY13 Q3FY13 Q1FY14 Q3FY14 Q1FY15

NALCO SSL Hindalco


www.imacs.in 74

Other primary aluminium producers have generally improved performance in the aluminium

business during FY2015. Sterlite’s results are not comparable because of merger with Sesa Goa.

SSL’s aluminium business was affected by availability of coal for captive power. Its EBITDA for the

quarter was higher mainly due to improved metal premium and rupee depreciation as compared

to corresponding previous period. Nalco’s revenues from aluminium business increased 28% in

Q2FY2015 to Rs. 12.49 billion. It reported PBIT margins of 2.9%, representing the first quarterly

profit since Q4FY2013. PBIT margins improved to 7.6% in Q2FY2015.

PBIT Margins

OUTLOOK

With the expectation of moderation in growth in India’s industrial production and real GDP,

domestic demand for aluminium is likely to increase at an annual average growth rate of 3% over

the period 2014 to 2016. Consumption declined 6% in 2014 as growth was constrained by weak

economic activity, restrained investment, and muted demand in construction and machinery.

Demand is expected to increase 8-9% in 2015. Over the medium-term, the sectors that are likely to

drive the expected increase in aluminium demand include power, construction, and automotives.

Moreover, India has relatively significant untapped demand potential for aluminium, as evident

from the country’s low per capita consumption of the metal. Also, with the uses of aluminium

increasing, given its versatility, the demand potential is likely to increase further.

Besides the likely increase in domestic demand, Indian producers of aluminium are also expected

to benefit from the long-term growth in international demand for the metal. On the supply side,

the emerging demand-supply scenario presents good prospects for domestic producers of

alumina and aluminium. India is already producing surplus alumina, which is being exported.

Inspite of an expected high increase in domestic aluminium production, this trend is likely to

continue with the establishment of greenfield export oriented alumina refineries. Given the likely

demand situation, almost all the domestic players have already drawn up major expansion plans.

-30%

-20%

-10%

0%

10%

20%

30%

40%

Q1FY10 Q3FY10 Q1FY11 Q3FY11 Q1FY12 Q3FY12 Q1FY13 Q3FY13 Q1FY14 Q3FY14 Q1FY15

SSL Hindalco NALCO


www.imacs.in 75

The scope for stepping up aluminium supplies in the Indian aluminium industry is significant, given

the abundance of bauxite reserves. Further, Indian manufacturers are among the lowest cost

producers of aluminium in the world. The country is thus placed favourably both in the alumina

and aluminium export markets.

In 2015, world aluminium prices are forecast to average around $1,900/tonne (t), representing an

average annual increase of 2-5%. Aluminium production growth is forecast to outpace

consumption and result in stocks increasing to 7.5 weeks of consumption in 2015. While high input

costs are likely to support higher prices in 2015, the abundance of spare capacity in China that can

respond quickly to higher prices will moderate any price recovery. Most of the growth in

aluminium consumption will come from emerging economies; while OECD economies are

experiencing moderate economic recoveries their aluminium consumption is still expected to

remain below pre-2008/09 levels. Despite recent production cuts, new smelter capacity against the

backdrop of weak demand could cause prices to remain depressed. While the US, China and India

are expected to drive aluminium demand in 2015, consumption in Europe is forecast to stagnate.

Production curtailments announced in 2013 are expected to have a more noticeable effect in 2014-

15 with the loss of a full year’s production. However, this will only partially offset relatively strong

growth in Chinese production and new onstream capacity in the Middle East. The world, excluding

China, could continue to be in short supply due to shut downs, production curtailments and strong

demand in South America and North America.


www.imacs.in 76

Intellectual Property Rights

The Intellectual Property Rights of this document vest entirely with ICRA Management

Consulting Services Limited (IMaCS). None of the information contained herein may be copied,

otherwise reproduced, repackaged, further transmitted, disseminated, redistributed, or resold,

or stored for subsequent use for any purpose, in whole or in part, in any form or manner or by

means whatsoever, by any entity without IMaCS’ prior written permission. Media may, however,

quote from this publication with due acknowledgement to IMaCS.

Copyright, ICRA Management Consulting Services Limited,

1105, 11th Floor, Kailash Building, 26 Kasturba Gandhi Marg, New Delhi 110 001

aluminium january 2015

Documents

industry comment aluminium

indian aluminium industry

industry structure

icra limited icra

indias aluminium consumption

grading of icra

world consumption

primary producers