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Aluminium: Demand to remain strong? - Views on News from Equitymaster
 
 
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  • Aug 31, 2011

    Aluminium: Demand to remain strong?

    The demand for aluminium has been strong in recent years. However aluminium industry being cyclical in nature, it could see a downturn in demand with the recent slowdown being witnessed in Indian and world economies. In this article, we try to analyze various factors which could help us identify demand trends in the aluminium industry.

    Major demand drivers of Aluminium

    The main end users of aluminium are the transportation, power, packaging, consumer durables and construction sectors. The usage pattern for aluminium in the sectors mentioned is different in India as compared with the rest of the world. While globally, the transportation and construction sectors are the major consumers of aluminium, in India, the bulk of the demand is accounted for by the power sector, followed by transportation. This anomaly can be attributed largely to the Government regulations that were in force till as late as 1991.



    Outlook for the major demand drivers of Aluminium

    Power Sector: Around 80% of aluminium demand in power sector is accounted for by bare conductors used for the transmission and distribution of electricity. The 12th five year plan (2012-2017) has laid an ambitious target of generating 100,000 megawatt (MW) of power which is double of what was planned in the 11th five year plan. This additional capacity augments well for aluminium demand.

    Transportation Sector: The auto industry has been growing at 18% for the past two years and is expected to grow even faster in the coming years. Aluminium is increasingly being used in the transportation sector and is replacing steel because of its high strength to weight ratio, which leads to better fuel efficiency. Also, while the use of aluminium in rail wagons in India is almost negligible at present, there is a possibility that aluminium would be used in significant quantities in the manufacture of rail wagons and coaches in future

    Construction sector: Aluminium is being used in the construction industry because of its properties like corrosion resistance, malleability, ductility and strength. The metal finds extensive use in corrugated sheets (for roofing), latches, tower bolts, handles etc. The Indian construction industry has grown at a fast pace over the last few years, but rising interest rates could see a slowdown in investments in this sector.

    Consumer Durable sector: Aluminium is used in variety of consumer durables like air conditioners, water coolers, refrigerators, utensils and pressure cookers. This sector is also witnessing trends towards weight reduction which augurs well for demand for aluminium.

    Packaging sector: In packaging, aluminium is used in foils, cans and bottle caps. Hence, globally, the growth of the packaging industry hinges on growth in sectors like foods, beverages, and medicines. In India, the foils 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.

    Conclusion

    The outlook for most of the demand drivers is positive but the recent slowdown witnessed in construction and transportation sector due to high inflation and rising interest rates could play spoil sport for domestic demand. The power generation target is also too ambitious which could further lower aluminium demand.

     

     

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