X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Aluminium - Its here to stay! - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 13, 2006

    Aluminium - Its here to stay!

    India is the fifth largest producer of aluminium in the world, accounting for around 5% of the total bauxite reserves (raw material for aluminium). India's installed aluminium production capacity is about 3% of the world capacity. With the present level of consumption of aluminum, the identified reserves would have an estimated life of over 350 years. During the year 2005, the gap in the world aluminium supply and consumption was barely 0.19 MMT (million metric tonnes). The world supply and consumption increased by 7.2% YoY and 5.1% YoY respectively during 2005, while the higher demand for the metal from the USA, Europe, China, Japan, India and South Korea helped strengthening the international prices. On the domestic front, during FY05, the country's aluminium consumption increased by 8.3% YoY. The domestic demand for aluminium, given the anticipation of a healthy growth in the country's GDP, is expected to grow at 10% per annum in the next 3-4 years.

    Barriers to entry
    The domestic aluminium industry is characterised by a high degree of concentration because of the following reasons:

    • High capital costs because of large plant sizes (1.5 lakh - 2 lakh tonne per annum smelters) and high capital intensity, and

    • Restricted access to technology, tie -ups have to be entered into with global technology suppliers

    Usage Pattern
    Sectors India Global
    Electical 31% 9%
    Aotomotive/Transport 18% 26%
    Packaging 11% 20%
    Building/Construction 13% 20%
    Others 27% 25%
    Source : ICRA Sector report
    While globally, the automotive 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. The anomaly can be attributed largely to government regulations that were in force till as late as 1991. Till 1970, 50% of the total aluminium metal output had to be of electrical grade. Due to this, there was shortage of commercial grade aluminium. Since 1990, the share of demand from electrical sector declined gradually from 37% in 1992 to 31% in 2005. Conversely, for the same period, the share of construction has increased from 7% to 13%. The share of automotive has declined from 21% to 18% during the same period.The usage pattern for aluminium in the sectors mentioned is different in India as compared with the rest of the world, as can be seen from the adjecent table.

    Key Inputs
    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. Of these, bauxite comprises 6% of the total raw material cost while power accounts for 21% of the total manufacturing cost.

    • Bauxite
      Indian aluminium producers are one of the lowest cost producers of the metal in the world. The average cost of bauxite production in India is US$ 5 per tonne as against the world average of US$ 20 to US$ 25 per tonne. Bauxite is the single largest cost item for the manufacture of alumina giving India a competitive advantage.

    • Power
      The production of primary aluminum relies on an electrolytic process and is highly electricity-intensive. Power is both the major and critical component in the production of aluminium. As smelters are energy intensive, requiring 15,000-18,000 units of power to manufacture one tonne of aluminium and, their continuous operation is necessary, sudden stoppages have a serious impact on the cost of production.

    Because of the critical importance of uninterrupted electricity supply, all domestic aluminium producers have set up captive power plants instead of relying on commercial power, which is both costly and erratic. While the power consumption per tonne of aluminium by smelters worldwide is around 14,000-15,500 Kwh, the most efficient Indian producer Nalco consumes 15,000 Kwh per tonne whereas Hindalco consumes 16,000 Kwh per tonne.

    Threat of substitutes
    Steel, wood and copper are the main substitutes of aluminium. The relatively low per tonne cost of steel, the higher aesthetic appeal of wood, and the higher conductivity of copper are some of the major factors that favour demand for aluminium substitutes. However, aluminium with properties like higher strength-to-weight ratio, durability, and higher corrosion-resistance is still able to counter competition. It is also worth mentioning that with the copper prices heading north on LME (London Metal Exchange), aluminium might emerge as a substitute for the former!

     

     

    Equitymaster requests your view! Post a comment on "Aluminium - Its here to stay!". Click here!

      
     

    More Views on News

    Hindalco Industries: Deleveraging Kicks in, One-Offs Hurt the Bottomline (Quarterly Results Update - Detailed)

    Aug 22, 2017

    Hindalco Industries has reported a healthy growth in the topline on the back of Higher volume and realisation for both Aluminium and Copper segments. However, the bottomline declined marginally primarily on the back a provision of Rs 1.04 billion.

    Hindalco: Strong Performance at Operating Level (Quarterly Results Update - Detailed)

    Feb 22, 2017

    Hindalco Industries has reported a 14.5% YoY increase in the topline while the bottomline came at Rs 3.2 billion.

    SAIL: Good Performance at EBITDA Level, Headwinds in the Offing (Quarterly Results Update - Detailed)

    Dec 21, 2016

    SAIL has reported a 21.4% YoY increase in the topline while the bottomline reported a loss of Rs 7.31 billion.

    Tata Steel: Domestic Realisation Disappoints, Loss continues... (Quarterly Results Update - Detailed)

    Dec 19, 2016

    Tata Steel has reported a 0.1% increase in the topline while the bottomline was in red in 2QFY17.

    Hindalco Industries: Strong Operational Performance Boosts Profitability (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Hindalco Industries has reported a 1.1% YoY increase in the topline while the bottomline has accelerated by 255.4% YoY.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE METAL


    Aug 22, 2017 (Close)

    S&P BSE METAL 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS