Aluminium Sector Analysis Report 

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• Aluminium Industry is the second most important metallurgical industry in India. The industry is primarily dominated by companies such as Hindalco and Vedanta, which are privately owned by NALCO.
• Aluminum is the second most used metal in the world after steel with an annual consumption of approximately 88 million tonnes (including scrap). It is also the fastest growing metal which has grown by nearly 20 times in the last sixty years (compared to 6 to 7 times for other metals).
• Rise in infrastructure development and automotive production are encouraging development in the metals and mining sector in India. India has vast mineral potential with mining leases granted for longer durations of 20 to 30 years. India produces 95 minerals– 4 fuel-related minerals, 10 metallic minerals, 23 non-metallic minerals, 3 atomic minerals and 55 minor minerals (including building and other minerals).
• The metal industry is a crucial sector in the Indian economy as it meets the requirements of a wide range of industries including engineering, electrical and electronics, infrastructure, automobile and automobile components, packaging etc. The metal industry comprises of two major segments: ferrous metals and non-ferrous metals.
• Ferrous metals primarily consist of iron and different varieties of steel. Non-ferrous metals, which include aluminium, copper, zinc, lead, nickel and tin, are used to make alloys, castings, forgings, extrusions, wires, cables and pipes.
• India has nearly 10% of the world’s bauxite reserves and a growing aluminium sector that leverages this. Demand in the domestic market is expected to raise by 8-10%.
• India holds a fair advantage in cost of production and conversion costs in steel and alumina. Crude steel production in the country increased 3.3% year-on-year to 106.6 MMT in 2018-19.

• Supply
• Supply of aluminum is in excess and any deficit can be imported at low rates of duty. Currently, the demand is stable while supply is in excess.
• Demand
• Demand for aluminium is estimated to grow at 6%-8% per annum in view of the low per capita consumption in India. Also, demand for the metal is expected to pick up as the scenario improves for user industries, like power, infrastructure and transportation.
• Barriers to entry
• Large economies of scale. Consequently, high capital costs.
• Bargaining power of suppliers
• Most domestic players operate integrated plants. Bargaining power is limited in case of power purchase, as Government is the only supplier. However, increasing usage of captive power plants (CPP) will help to rationalize power costs to a certain extent in the long-term.
• Bargaining power of customers
• Being a commodity, customers enjoy relatively high bargaining power, as prices are determined on demand and supply.
• Competition
• Competition is primarily on quality and price, as being a commodity, differentiation is difficult. However, the recent spate of consolidation has reduced the competitive pressure in the industry. Further, increasing value addition to aluminium products has helped some companies protect themselves from the high volatilities witnessed in this industry.

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• CY18 was a highly volatile year for the aluminium industry with the US being a pivot for major events. The first half of the year was completely dominated by the US sanctions on UC Rusal and the imposition of Section 232, i.e., import tariffs of 10% on all aluminium products.
• The second half was impacted by the eruption of trade war between the US and China. Alumina supply was also impacted during the year due to disruptions at one of the world’s biggest refineries outside China.
• In CY18, primary aluminium consumption growth moderated to 3% YoY from 6% in CY17. The world, excluding China, reported aggregate consumption growth of around 2% in CY18, down from 3% in CY17, owing to subdued demand in Japan, the Middle East, Brazil, and Europe, while demand growth in North America remained flat at 2%, YoY.
• China struggled on two fronts – the trade with the US and moderation in the domestic economy. Consequently, consumption growth slowed significantly to around 3% in the year from around 8% in CY17.
• Global aluminium production excluding China grew around 2% YoY in CY18 versus around 1% a year ago. Production growth in China slipped to around 1% from 13% in CY17.
• Global aluminium prices witnessed extreme volatility. In the first half, prices peaked at US$ 2,700/tonne owing to import tariffs. By the end of the second half, prices plunged to below US$ 1,900/tonne due to the US-China trade war and the removal of sanctions on US Rusal.
• In the domestic market, aluminium production maintained a strong growth of 9% in FY18-19 while domestic consumption remained robust at around 9.5%. User industries like transportation, construction and consumer durables were the major demand drivers.

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• Domestic demand is likely to remain robust at 7% in FY19-20, driven by construction and packaging. The increasing share of imports of aluminium products, including scrap, will continue to be a major concern for domestic aluminum producers.
• The adoption of strong, lightweight and formable aluminium sheets in vehicle parts and structures is driving growth in the automotive body sheet segment. This market is expected to record a CAGR of 12% to 15% between CY18 and CY25, despite some recent softening in European and Chinese demand.
• The global macroeconomic environment is likely to remain highly volatile due to increased trade tensions between the US and China and uncertainty around Brexit. Central banks of major economies are taking an accommodative policy stance to aid economic growth.
• According to the International Monetary Fund (IMF), global economic growth is expected to moderate further to 3% in CY20 from 33% in CY19. IMF predicts that the weak global growth outlook is likely to continue for the rest of the year and next. This is the slowest pace of growth since the 2008-2009 financial crisis.
• The agency also added that the US, China, Eurozone and Japan, the four largest economies of the world, will remain under pressure over the next few years. The US will further slow down to 2.1% from its present 2.4% by next near. The Chinese economy will slow gradually to post a growth rate of 5.5% by 2024, down from its current rate of 6.1%. Manufacturing crisis, especially in the automobile sector, will keep Eurozone economic growth slower than before.
• The continued downbeat in manufacturing and other areas of the economy hint at a further weakness in the world's top metal consumer. Also, market experts are pessimistic about China's economy, even though the country recently posted some bright economic numbers. Recent measures like a tax cut and infrastructure spending are likely to translate into firmer demand for base metals in the coming quarters in India.
• Investment in the country's infrastructure will underpin the projected economic acceleration. The Indian government is investing over US$ 1 billion in its "Make in India" initiative. The aluminium industry will benefit from this. There is great demand for the technology required to build new production facilities. Experts assume that India's annual aluminium consumption will double to 7.2 million tonnes by 2023.
• It remains to be seen what kind of impact, direct or indirect, is made by the imposition of trade tariffs by the US on India’s exports. However, the domestic market is expected to show robust growth, supported by the increased industrial activity in the country and various Government schemes like Make-in-India and Smart Cities. In anticipation of an increase in demand, the primary producers have been ramping up their production over the last year, which is expected to continue this year as well.

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Related Links for Aluminium Sector
Quarterly Results | Sector Quote | Over The Years