Market size
Global Aluminium production for 2013 is estimated to be around 47.6 million tonnes (mt) which is marginally higher than the previous year production of 46.2 million tonnes (mt). Global Aluminium smelters are expected to operate at 84% of capacity. The underutilization of capacity is due to dip in automobile purchases, economic uncertainty in Europe and a slowdown in imports by China.
China is the major demand driver for aluminium as nearly 40% of demand is coming from the country alone.
Brief introduction to Aluminium
Aluminium is the third most abundant element present in the earth’s crust. It exists in a very stable combination with other materials particularly silicates and oxides. The metals is light weight, strong, durable, flexible, and impermeable. It is rust resistant and is 100% recyclable.
The most commercially mined aluminium ore is bauxite, as it has the highest content of the base metal. The primary aluminium production process consists of three stages. First is mining of bauxite, followed by refining of bauxite to alumina and finally smelting of alumina to aluminium.
The aluminium production process can be categorised into upstream and downstream activities. The upstream process involves mining and refining while the downstream process involves smelting and casting & fabricating. Downstream-fabricated products consist of rods, sheets, extrusions and foils.
Power is amongst the largest cost component in manufacturing of aluminium, as the production involves electrolysis. Consequently, manufacturers are located near cheap and abundant sources of electricity such as hydroelectric power plants. Whereas the recycling of the metals saves 90-95% of power which provides a huge benefit to the manufacturer considering that power is such a high cost component.
Indian Scenario
India ranks fifth in terms of aluminium production and accounts for 5 percent of the total production worldwide. Despite this, India’s per capita use of aluminium is 1.2 kgs as compared to 10.6 in China, 12.4 in the USA and the global average of 11.2 kgs. These figure shows level of growth potential for Aluminium sector in India.
In the recent past India’s economy has slowed down from 8% CAGR growth during the period 2003-2011 to growth levels of 5% for 2012-2014. The economic growth slowdown has resulted in poor demand for aluminium. Aluminium finds a wide application in almost everything, from power to transportation to construction andwhen the government starts boosting GDP by fast tracking infrastructure projects, the demand for the aluminium will rise.
Major producers of the metal in the country include state -owned National Aluminium Company Ltd (NALCO) and private sector units – Bharat Aluminium Company Limited (BALCO), Hindustan Aluminium Company Ltd (HINDALCO) and Vedanta Aluminium Company Ltd (VAL).
Aluminium Association of India’s estimates the metal demand to grow at 10-12% per annum and this will be driven by growth in sectors like electricity, transport, building and construction and packaging.
Uses of Aluminium
Aluminium plays a key role in any economy growth story due to its wide application in key sectors like Power, Automotive, Construction, Consumer Durables and Packaging.
Chart 1:
Source: Aluminium India
The power sector in India currently accounts for a 42% share in aluminium consumption and with the government investing heavily in infrastructure, power generation and transmission sectors are likely to see a rapid increase in usage in the near future.
Building and construction sector brings 17% of demand for aluminium in India. Automotive sector consumes 14% of aluminium. The average use of aluminium in a passenger car is as high as 180 kgs in Europe and 120 kgs in other Asian countries, it less than 80 kgs in India and there is therefore, a huge potential for growth.
The packaging sector currently accounts for 10% of the total aluminium consumption in India. Aluminium is lightweight, highly resistant to corrosion, non – magnetic, non-combustible and non – toxic, rendering it an excellent packaging material.
Price movement since 2008
In November 2008 before the global recession, the primary aluminium prices at LME (London Metal Exchange) had touched all time high of $3,271 a tonne and the prices crashed to five year lows of $1,252 a tonne in February 2009. Since then the price of aluminium has not recovered.
As on the September 2014 the metal is trading at $1,946 a tonne.
Future Outlook
Alcoa the global bellwether company for the Aluminium Industry, has estimated in its press release that global aluminium growth will be 7%. The major driver for demand growth will be India and China. China consumes 40% of global aluminium production making the country largest consumer of the metal. Alcoa also mentions that china is expected to witness 11% growth in consumption to 23 million tonnes.
Table 1: Demand & Supply 2014 Estimates
Source: Aluminium Association of India
