Industry Forecast - Aluminium: Slipping Into Deficit15 De c 2014 India Me tals Hindalco

BMI View: A domestic shortfall in bauxite will continue to hinder growth in Indian aluminium production over the coming quarters. We expect the balance in aluminiumoutput to shrink from 92kt in 2013 to -3.4kt in 2018. Indian companies will increasingly venture abroad to secure bauxite reserves due to a dearth of domestic miningopportunities.We forecast Indian refined aluminium output to increase at an average c lip of 4.0% per annum to reach 2.1mn tonnes (mnt) by 2018. Domestic producers wills truggle to increase output s ignicantly due to environmental protests which will continue to hinder bauxite mining in the country. Furthermore, subduedaluminium prices will put a lid on production growth. We forecast aluminium prices to average USD1,900/tonne in 2015 and USD2,000/tonne in 2016,compared with an average price of USD2,053/tonne in 2012.

Aluminium Production, Consumption & BalanceAluminium Production, Consumption & Balance (2003-2018)

f = BMI forecast. Source: USGS/ BMI

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India is the s ixth-largest producer and fth-largest consumer of rened aluminium in the world, both at around 3.6% of global total in 2013. Major aluminiumproducers in the country inc lude state-owned National Aluminium Company Ltd (NALCO) and private sector units such as Bharat Aluminium CompanyLtd (BALCO), Hindustan Aluminium Company Ltd (HINDALCO) and Vedanta Aluminium.Despite the rich bauxite reserves in India, domestic aluminium producers have struggled to operate at full capacity due to the diculties in securing bauxite.Major aluminium producers have been forced to curtail operations over the past year due to a domestic shortfall in bauxite, caused largely by delays in thepermitting process of mine and environmental c learances. Indeed, Vedanta's Lanjigarh alumina renery plant in Odisha has been forced to shut down onseveral occasions due to the lack of raw materials . Over the coming years , Indian aluminium producers will increasingly seek bauxite reserves abroad inorder to cover the shortfall in domestic output.

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China DominatesGlobal - Aluminium Production by Country (2013)

Source: USGS

Consumption Growth Edging Higher We expect Indian rened aluminium consumption to head higher over the coming years , in line with our optimistic outlook on the wider Indian economy. Weforecast consumption growth to average 5.2% over our forecast period, making the country a key driver of demand growth in the global aluminium market.Apart from growing demand for automobiles , the growing auence of Indian consumers will spur spending on housing and white goods as the countryundergoes rapid urbanization.Environmental Concerns A Key ThreatGrowing concerns over the environmental impact of mining activities will continue to stie growth in the aluminium sector. For instance, Vedanta'senvironmental c learance for its Niyamgiri mine was cancelled in 2011 following erce opposition from environmentalists and the local community. Crucially,delays and cancellations throughout the supply chain could undermine India's drive towards self-suciency. State governments have invited investment indownstream alumina refining and aluminium smelting, but the lack of progress in opening up bauxite mines suggests to us that India will s truggle to achieve itsfull potential in aluminium production over the coming quarters .

This mate rial is prote cte d by inte rnational copyright laws, and use of this is subje ct to our Te rms & Conditions. 2015 Busine ss Monitor Inte rnational Ltd

Industry Forecast - Aluminium: Slipping Into Deficit