Industry Comment

Aluminium

ICRA Management Consulting Services Limited

IMaCS Research & Analytics

THE INDIAN ALUMINIUM INDUSTRY

January 2015

Industry Comment

www.imacs.in

www.imacs.in

Industry Comment

Contacts:
Vineet Nigam
+91 120 4515831

Aluminium

Principal

Disclaimer
All information contained in this document has been obtained by IMaCS from sources believed by
it to be accurate and reliable. Although reasonable care has been taken to ensure that the
information herein is true, such information is provided as is without any warranty of any kind,
and IMaCS in particular, makes no representation or warranty, express or implied, as to the
accuracy, timeliness or completeness of any such information. All information contained herein
must be construed solely as statements of opinion, and IMaCS shall not be liable for any losses
incurred by users from any use of this document or its contents in any manner. Opinions
expressed in this document are not the opinions of our holding company, ICRA Limited (ICRA),
and should not be construed as any indication of credit rating or grading of ICRA for any
instruments that have been issued or are to be issued by any entity.

www.imacs.in

Industry Comment

Aluminium

TABLE OF CONTENTS
HIGHLIGHTS .......................................................................................................................................... 4
OVERVIEW ............................................................................................................................................. 5
INDUSTRY STRUCTURE ....................................................................................................................... 7
USER SEGMENTS .................................................................................................................................. 8
END-USER SEGMENTS ........................................................................................................................................................ 8
THREAT OF SUBSTITUTES .................................................................................................................................................. 12
DEMAND-SUPPLY TRENDS AND PROSPECTS ............................................................................... 13
WORLD PRODUCTION....................................................................................................................................................... 13
WORLD CONSUMPTION ................................................................................................................................................... 24
INDIAS ALUMINIUM CONSUMPTION .............................................................................................................................. 30
DOMESTIC SUPPLY CHARACTERISTICS .......................................................................................... 33
PRIMARY PRODUCERS ....................................................................................................................................................... 34
SECONDARY PRODUCERS ................................................................................................................................................. 36
ALUMINIUM RECYCLING ................................................................................................................................................... 37
CAPACITY EXPANSIONS..................................................................................................................................................... 38
PRICES AND DUTIES .......................................................................................................................... 43
PRICE TRENDS AND PROSPECTS....................................................................................................................................... 43
DUTY STRUCTURE .............................................................................................................................................................. 51
FOREIGN TRADE ................................................................................................................................. 53
IMPORTS ............................................................................................................................................................................. 53
EXPORTS ............................................................................................................................................................................. 54
MAJOR COSTS .................................................................................................................................... 55
BAUXITE .............................................................................................................................................................................. 56
ALUMINA ............................................................................................................................................................................ 61
POWER ................................................................................................................................................................................ 62
OTHER CONSUMMABLES .................................................................................................................................................. 71
FINANCIAL PERFORMANCE.............................................................................................................. 72
OUTLOOK ............................................................................................................................................ 74

www.imacs.in

Industry Comment

Aluminium

HIGHLIGHTS

Consumption Trends and Growth: World primary aluminium consumption aggregated 49

million tonnes (mt) in 2014, making aluminium the worlds second most used metal, after iron.
Over 2012 to 2014, world aluminium consumption grew by an estimated compounded average
growth rate (CAGR) of 4.6%.
Sectoral Usage: Globally, the use of aluminium by major sectors stands at building and
construction (31% of demand during 2013), transportation (25%), electrical supplies (13%),
packaging (12%), consumer products (8%), machinery and equipment (7%), and others (4%).
Electrical applications continue to be the largest end-use sector in India, accounting for
approximately 48% of Indias aluminium consumption as a result of the continuing drive to
provide electricity throughout the country. Transport is also a major consumer, contributing
approximately 15-17% of demand.
Domestic Consumption Growth and Outlook: Indias aluminium demand declined 9% in
2013 and 6% in 2014 because of lower domestic production, and weakness in electrical and
construction sector investments. Demand is expected to increase 8-9% in 2015-16. With the
uses of aluminium increasing, given its versatility, the demand potential is likely to increase
further.
Per Capita Growth and Outlook: Although Indias annual per capita aluminium consumption
has increased from 0.6 kg in 1996 to 1.1 kg in 2014, it is around 7% of Chinas per capita
consumption of 17.3 kg. Indias per capita consumption is unlikely to increase at the same rate
as China because of lower share of industrial sector in Indias gross domestic product (GDP),
and lower proportion of manufactured products in Indias merchandise exports.
Domestic Capacity Additions: Indias primary aluminium production capacity is expected to
increase from 1.8 million tonnes per annum (mtpa) at present to 4.7 mtpa by end-FY2017, with
much of the forecast expansion in capacity and production targeted for export markets.
Alumina production capacity is forecast to increase by 8.7 mtpa to 13.3 mtpa, with around 4
mtpa of capacity surplus to domestic requirements.
Price Outlook: In 2015, world aluminium prices are forecast to average around $1,900/tonne
(t), representing an average annual increase of 2-5%. Aluminium production growth is forecast
to outpace consumption and result in stocks increasing to 7.5 weeks of consumption in 2015.
While high input costs are likely to support higher prices in 2015, the abundance of spare
capacity in China that can respond quickly to higher prices will moderate any price recovery.
Most of the growth in aluminium consumption will come from emerging economies. Despite
recent production cuts, new smelter capacity against the backdrop of weak demand could
cause prices to remain depressed. While the US, China and India are expected to drive
aluminium demand in 2015, consumption in Europe is forecast to stagnate. Domestic prices
would continue to remain linked with world prices, and price changes could be determined by
exchange rate fluctuations.

www.imacs.in

Industry Comment

Aluminium

OV E RV IE W
Aluminium is a non-ferrous metal that also include copper and a number of other materials (such
as zinc, lead, and cadmium). Aluminium is an abundant (7 to 10% by weight of the earths crust),
slightly blue-white metal of high strength-to-weight ratio. Unalloyed aluminium has a melting
point is 658.7C, and boiling point of 2,494C, and its specific gravity is 2.7, roughly 35% of iron
and 30% that of copper. It is nonmagnetic and has high thermal and electrical conductivity.
Aluminium is resistant to corrosion and chemical attack in many environments at normal
temperatures largely due to the very thin film of aluminium oxide that quickly forms on surfaces
exposed to the atmosphere. Aluminium is highly malleable in the pure form as well as in many
alloyed versions.
Although aluminium is the third most abundant material in the Earth's crust after oxygen and
silicon, it is a comparatively new industrial metal. This metal was first prepared in Denmark in 1825
by the reduction of aluminium chloride by potassium at high temperatures. The aluminium so
produced sold for $158/lb. (pound) owing to the high cost of potassium and to the expense
involved in obtaining dry aluminium chloride. Substitution of the cheaper metal sodium for
potassium lowered costs and prices, and subsequent improvements in methods for the production
of sodium made possible even lower costs of $5-6/lb. Even so, these improved methods resulted in
a total production of less than 100 lb. of aluminium per annum. Aluminium has been produced in
commercial quantities only since 1886 when Charles Martin Hall (in the US) and Paul-LouisToussaint Hroult (in France) independently discovered how to produce aluminium through
electrolysis. In 1900, annual output of aluminium was only 7,300 tonnes. By 2014, annual world
production had reached 48.3 million tonnes (mt), making aluminium the worlds second most used
metal (after steel).
Bauxite ore is the primary raw material in the production of aluminium. Bauxite is a non-crystalline,
2 3
earthy-white to reddish mineral, theoretically containing 74% alumina (Al O ). It is the most
important ore of aluminium, but is also used for making aluminium oxide abrasives, for
refractories, white cement, and decolorising and filtering. Around 6 tonnes (t) of bauxite are
required to produce 1 t of aluminium. Approximately 95% of the worlds bauxite production is
processed into aluminium. Bauxites are typically classified according to their intended commercial
application: metallurgical, abrasive, cement, chemical and refractory. Bauxite is graded on the
alumina content. High-grade bauxite or Grade A contains a minimum of 55% alumina and a
maximum of 8% silica. Grade B contains a minimum of 50% alumina with a silica content ranging
from 8 to 16%. Chemical grades should have less than 2.5% iron oxide.
Aluminium oxide also known as alumina, is the main component of bauxite. Bauxite is refined into
alumina using the Bayer process, which is based on the reaction of the ore with sodium hydroxide.
The Bayer process was invented in 1888 by the Austrian chemist Karl Bayer. The process began to
gain importance in metallurgy together with the invention of the electrolytic aluminium process
invented in 1886. At present, the Bayer process is virtually unchanged and it produces nearly all the
world's alumina supply as an intermediate in primary aluminium production.

www.imacs.in

Industry Comment

Aluminium

There are two main types of alumina (bauxite) ores used as the primary sources for aluminium
metal and aluminium chemicals: aluminium hydroxide (gibbsite) and a mixed aluminium oxide
hydroxide (boehmite). Thus, bauxite is a term for a family of ores rather than a substance of one
definite composition. Aluminium production can be split into primary aluminium production and
recycling. In primary aluminium production, alumina is dissolved in a molten liquid cryolite solution
o
(at around 1,000 C) in large steel furnaces (pots) lined with refractory bricks and containing carbon
cathodes and anodes. These furnaces become electric cells when an electric current is passed
through the cryolite from a carbon anode (positive electrode) to a carbon cathode (negative
electrode).The electrolytic reaction reduces alumina to molten aluminium. The molten aluminium is
transferred to holding furnaces and then poured directly into moulds to produce foundry ingots or
further refined to form fabricating ingots. The production of 1 t of aluminium requires about 1.95-2
t of alumina and 6 t of bauxite.
As compared with its substitutes, aluminium weighs about one-third as much as steel or copper.
Aluminium is used when some or all of the following properties are required: strength with light
weight, corrosion resistance, nontoxicity, electrical conductivity, and easy machinability or
formability. Over the past few decades, aluminium, with its diverse applications, has established
itself as a `wonder metal. It is light, ductile, a good conductor of heat and electricity, nonmagnetic, non-toxic and decorative. Being malleable, it can be alloyed with other metals. The metal
has the potential to substitute other conventionally used materials like steel in many applications.
Primary aluminium is processed further into bars, rods, billets, plates, sheets, foils, etc. which are
used in a variety of products such as air conditioners, refrigerators, aircraft (structures and engines),
automotives (body parts and engines), bridges, food containers, drink cans, cooking and packaging
foils, window and door frames for buildings and electric cables. Worldwide, aluminium is used in
various sectors, prominent among which are building and construction (31% of demand during
2014), transportation (25%), electrical supplies (14%), packaging (12%), consumer products (8%),
machinery and equipment (7%), and others (4%). Its main markets are China, which represented
49% of worldwide demand in 2014, followed by US (10%), Germany (4.4%), Japan (4.2%), and India
(3%).
The main primary producers of aluminium are located in China, Russian Federation, North America,
Latin America, Western Europe, and Australia. Japan has phased out its primary aluminium
production over the last thirty years and now imports most of its requirements from Australia. Over
the last two decades, the global production pattern for aluminium has undergone extensive
regional changes, with a shift in production from developed to emerging economies. China is now
the worlds largest aluminium producer, with production of 24.5 mt in 2014, accounting for 50% of
global production. Since 2004, China has also become the worlds largest consumer of aluminium.
Most of the recent growth in the aluminium industry has emerged from the developing countries
such as China, India, and Brazil.

www.imacs.in

Industry Comment

Aluminium

I N D U S T RY S T RU C T U R E
India is an important player in the aluminium sector, especially because of its abundant bauxite
1
reserves. India had bauxite resources of 3.48 billion tonnes (bt) as of April 1, 2010. Out of this,
around 84% (2.92 bt) are of metallurgical grade. World bauxite resources are estimated to be 55 to
75 bt, located in Africa (32%), Oceania (23%), South America and the Caribbean (21%), and Asia
(18%). World bauxite reserves are presently estimated at 28 bt.
India entered the global aluminium industry in 1943 following the establishment of Indian
Aluminium Company Limited (Indal). At present, the domestic aluminium industry can be divided
into two broad categories:
Primary metal producers processing bauxite into aluminium ingots, billets or properzi rods.
Secondary fabrication units processing aluminium into rolled products, foils, sheets or
extrusions.
Primary aluminium can be sold in the form of ingots, billets and slabs. Given that production of
aluminium (the metal) is a more capital-intensive activity than fabrication, there are just five large
primary producers in India, as against several small downstream manufacturers. The five producers
are Nalco, Bharat Aluminium Company Ltd. (Balco), Hindalco Industries Ltd. (Hindalco), Madras
Aluminium Company Ltd. (Malco), and Vedanta Aluminium Ltd. (VAL). As of end-FY2013, these five
players presently had an installed capacity of 5.3 million tonnes per annum (mtpa) of alumina or
aluminium oxide (the main component of bauxite), and 1.7 mtpa of primary aluminium. Installed
capacity and production increased significantly during FY2009 because of setting up of a new
Greenfield project by VAL. Although production has continued to increase during FY2010-12,
installed capacity declined in FY2010-11 because of cessation of operations at Balcos 100 ktpa
aluminium smelter at Korba. In response to recent global economic conditions and a decline in
commodity prices, starting in February 2009, Balco suspended part of its operations at Korba.
Operations at this aluminium smelter ceased on June 5, 2009.
Since primary players produce aluminium at much lower costs vis--vis the landed cost of
imported aluminium that is used by most secondary players, the margins of primary producers
increase if they undertake secondary processing themselves. The primary industry has thus started
integrating downwards.
The secondary rollers and extruders in the Indian aluminium industry either purchase the primary
metal (billets and blooms) from domestic producers or import the same and process the metal at
their own fabrication plants into semi- or fully -fabricated products.

Resources are defined as concentration of naturally occurring solid, liquid, or gaseous material in or on the
Earths crust in such form and amount that economic extraction of a commodity from the concentration is
currently or potentially feasible.

www.imacs.in

Industry Comment

Aluminium

U S E R S E G ME N T S
End-User Segments
The main end-users of aluminium are the automotive/transportation, building/construction,
electrical, packaging, and consumer durables sectors. The main applications of the metal in these
sectors are presented below:
Mai n A p pl i ca ti o ns o f Al umi ni u m
Sector

Applications

Automotives

Panelling, flooring, windows, crankcases, cylinder blocks, radiators, wheel rims, car
bodies and frames, etc.
Internal fittings such as seatings, cylinder blocks
Overhead lines, electrical energy distribution and transport cables, energy cables for
industrial use, conductors, extrusions, foil wraps for cables
Cans, containers, collapsible tubes, and foils & closures for food, tobacco and
pharmaceutical products
White goods, fans, coolers
Roofing, window frames and building hardware

Aviation
Electrical
Packaging
Consumer Durables
Construction

While globally, the transportation 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
and building/construction.
En d- Us e Pa t te r n o f Al umi ni u m Us a ge
Packaging
4%

Packaging
12%

India

Constn.
13%

Machinery
7%

World
Machinery
7%

Others
4%
Consumer
Goods
8%

Electrical
13%

Others
12%

Transport
16%

Transport
25%

Constn.
31%

Electrical
48%

The anomaly can be attributed largely to the Government regulations that were in force till as late
as 1991. According to the Aluminium Control Order, 1970, fifty percent of the total aluminium
metal output had to be of electrical grade. However, with the rescinding of controls in 1991 and
www.imacs.in

Industry Comment

Aluminium

the subsequent growth of the automotive and construction sectors during the 1990s, the share of
demand from the electrical sector grew at a sluggish pace. The sector-wise aluminium
consumption trends in India are presented in Table below:
S ec tor - wi s e C ons u m p ti o n o f Al umi ni u m i n In di a
Percent of total
Sectors

1970-71

1980-81

1991-92

1995-96

1999-00

2012-13

48
8
2
8
6
28
100

52
11
6
6
6
19
100

37
21
7
8
6
21
100

34
22
8
11
8
17
100

35
17
10
10
6
22
100

48
15
13
4
7
13
100

Electrical
Automotives/Transport
Building/Construction
Packaging
Machinery
Others
Total

Electrical applications continue to be the largest end-use sector in India, accounting for
approximately 48% of Indias aluminium consumption as a result of the continuing drive to provide
electricity throughout the country. Transport is also a major consumer, contributing approximately
15-17% of demand.

Electr ica l S ector

In the power sector, most long distance overhead transmission and distribution lines are made of
aluminium. Aluminium has high thermal and electrical conductivityin order of electrical
conductivity, the best four elements are silver, copper, gold, and aluminium, respectively. The
electrical sector has traditionally accounted for bulk of the demand for aluminium in India, owing
primarily to the Aluminium Control Order that was in place till 1991. Around 80% of the aluminium
demand emanating from the power sector is accounted for by bare conductors used for the
transmission and distribution of electricity. Since 1984-85, there has been growing use of all
aluminium alloy conductors (AAAC), which have better structural and thermal properties, and can
be made to different strength/conductivity requirements for transmission at different voltages,
thus leading to lower losses. Aluminium is also used in insulated and underground cables laid in
large populated urban areas and in reserved forests (to avoid deforestation). In addition, the metal
finds application in electrical devices such as transformers and other coil windings, which use paper
insulated or enamelled aluminium wires and stripes.

Au tomotive S ector
In the transportation sector, aluminium makes a key contribution to fuel-efficient engines in cars
and trucks as well as to high speed rail and sea travel. By reducing the vehicles weight, it cuts down
on fuel consumption and emissions without compromising the size or the safety of the vehicles.

www.imacs.in

Industry Comment

Aluminium

Wo rl d S ec to r - wi s e C ons um p ti on of Al u mi ni um
Percent of total
Sectors

2008

2009

2010

2011

2012

Building and Construction

Transport
Electrical
Packaging
Consumer Goods
Machinery & Equipment
Others
Total

26.2%
25.6%
12.8%
15.4%
7.1%
8.1%
4.8%
100%

28.0%
23.8%
14.6%
14.6%
7.1%
7.5%
4.4%
100%

28.5%
26.3%
13.6%
13.1%
7.5%
7.0%
4.0%
100%

29.8%
25.2%
13.6%
12.5%
7.7%
7.3%
4.0%
100%

30.3%
25.1%
13.5%
12.3%
7.6%
7.1%
3.9%
100%

At present, steel is currently the main automotive material. Over the past decade, steel made up an
average of 55% of the weight of a fully fuelled car without cargo or passengers. Most of the
remaining weight is accounted for by iron (10%), aluminium (6-10%), and plastics.
Globally, aluminium has the potential of achieving greater usage in the automotive sector because
of its high strength-to-weight ratio, which leads to better fuel efficiency. The extensive use of
aluminium can result in a weight reduction of up to 15-17%. Besides, in addition to having light
weight, aluminium space frames have shown better crash resistance than conventional steels.
Aluminium use per vehicle is presently over 113 kilogram (kg) on average as compared with 55 kg
in 1986. The aluminium content in cars and trucks in US averages 160 kg at present, as compared
with 117 kg in 2002. Other metals/minerals used in the US include iron and steel (963 kg), carbon
(23 kg), copper (19 kg), silicon (19 kg), and lead (11 kg). The corresponding figure for India is only
46 kg at present; it is however likely to go up in line with the global trend. On average, the light
vehicles in the US and the EU member countries contain 148 kg of aluminium. Aluminium accounts
for 8% of the total weight in Japanese cars, and around 10% in cars and trucks made in the US.
Broadly speaking, other things being equal, vehicle fuel economy improvements can be realised by
weight reduction by the use of alternative materials. In an automobile, aluminium and steel overlap
in such applications as the frame or engine. The average weight of an automobile is 1,000-1,400
kg. The desire to reduce weight and contribute to improved fuel economy has led to an increased
use of aluminium, which is less dense than steel. However, the amounts of aluminium and steel,
particularly as part of the frame of an automobile, are a function of the desired features of
automobile design. Vehicle weight may be reduced either by decreasing the size of the vehicle or
changing the materials it is made of. At constant size and features, the automotive industry has
achieved weight reduction by more extensive use of high strength low alloy (HSLA) steel in the
body structure; use of aluminium castings for the engine block, cylinder head and transmission
case; use of lightweight composite (plastic) materials in the vehicles interior; replacing steel
suspension members with aluminium forgings; and use of space frame or monocoque aluminium
body-in-white. While the use of HSLA, aluminium castings, and lightweight plastics in interiors is
now common, very few vehicles use aluminium bodies. Because of aluminiums higher cost,
aluminium bodies are currently only used in a few luxury car models. Cost and the eventual need
for large investments to modify the vehicle production process are the main barriers to the use of
lightweight materials such as aluminium.
www.imacs.in

10

Industry Comment

Aluminium

Although much attention has been paid to the use of aluminium and plastics in reducing the
weight of vehicles, most vehicles still rely heavily on steel for strength and safety, in the frame and
many components. Stronger, lighter steels have also been developed that can play an important
near-term role in reducing weight. A significant share of high-strength steel could reduce vehicle
weight by up to 10%. The cost of such reductions has been estimated at below $300 per vehicle.
Aluminium also has significant lightweight potential and are already in use in some larger, luxury
vehicles. Aluminium could cut vehicle weights by 10% at reasonable cost and up to 25% when used
in all suitable components, though achieving this full potential could cost well over $1,000 per
vehicle. Composite materials consisting of a glass- or carbon fibre-reinforced polymers could
reduce vehicle weight by up to 40% but could cost up to $20,000 per vehicle.
Traditionally, aluminium usage in automotive industry has been primarily restricted to usage
mainly in components obtained from casting processes, such as wheels, certain elements of the
suspension, the transmission housing and engine parts (pistons, cylinder heads, manifolds, heat
exchanger. In some cases, aluminium extrusions are used as bumper beams or frame components
and are better suited for low production volumes than stamping. Although they carry lower capital
costs, they generally require longer process times for the additional manufacturing steps (bending
or hydroforming).
Recycling can help make aluminium more cost competitive for automotive use. Recycled metal
uses only 10% of the energy to convert back into sheet, and could reduce aluminium cost by
around $200/t. However, the changing types of aluminium alloys used in different vehicle
components may reduce the potential for recycling.

Aer ospa ce
Aluminium is the primary aircraft material, comprising about 80% of an aircraft's unladen weight.
Many internal fittings like the seating on planes are made from aluminium or an aluminium
composite in order to save weight and thus save fuel, reduce emissions and increase the aircraft's
payload.

Bu ildin g/Con str u ction

Aluminium is being used in the building/construction industry because of its properties like
corrosion resistance, malleability, ductility and strength. The metal finds extensive use in
corrugated sheets (for roofing), butt hinges, latches, tower bolts, handles, etc. The high strength to
weight ratio of the metal enables use of aluminium alloy frames in the construction of high-rise
structures. Besides, aluminium is also being used increasingly in the construction of permanent
bridges, because of its lower maintenance requirements. Moreover, because of the higher
strength-to-weight ratio of the metal, the dimensions of the structurals can be reduced.

www.imacs.in

11

Industry Comment

Aluminium

P a cka gin g
In the packaging sector, aluminium is used in foils, cans, collapsible tubes and bottle caps. Hence,
globally, the growth of the packaging industry hinges on growth in sectors like foods, beverages,
and medicines. While the world over, aluminium beverage cans (ABC) account for a substantial part
of the total aluminium consumption, in India, ABC is only a recent phenomenon. However,
carbonated drinks are now increasingly being packed in ABC in India. Within the packaging
industry in India, the foils subsegment 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.

Con su mer Du r a bles

Aluminium, being a thermal conductor, light and corrosion resistant, is used in variety of consumer
durable items like air conditioners, water coolers, refrigerators, utensils and pressure cookers. As in
the case of automotives, the global consumer durables sector is also witnessing a trend towards
weight reduction, which points to good prospects for aluminium off -take by this sector.

Threat of Substitutes
Copper can replace aluminium in electrical applications; magnesium, titanium, and steel can
substitute for aluminium in structural and ground transportation uses. Composites, steel, and wood
can substitute for aluminium in construction. Glass, paper, plastics, and steel can substitute for
aluminium in packaging.
Relatively lower cost per tonne for steel and higher aesthetic appeal for wood are the positive
factors for these materials. Higher strength/weight ratio, durability and lower corrosion levels are
the positive factors for aluminium. This coupled with usage in newer application areas and the
untapped demand potential (annual per capita consumption of 1 kg per versus over 30 kg in
developed countries are the key factors which may result in greater preference for Aluminium in
India in the future.
The automotive industry's drive for corrosion-resistance and lighter weight has led it to use plastics
and aluminium for a number of applications. However, the development of lighter, stronger, more
formable and more corrosion-resistant steels since the 1980s has enabled the steel industry to
maintain its position and even recapture over a dozen applications. With new galvanising and
coating techniques, steel has met the higher standards for corrosion-resistance. It retains an
advantage over other automotive materials in terms of crash-resistance, due to its energyabsorbing properties; weldability and strength of welds, also a safety factor; formability, which
contributes to cost savings reparability, which lowers costs; paintability with less environmentallydamaging processes than aluminium; recyclability; and energy consumption in its own production
(primary aluminium is five times as energy-intensive to produce as steel).
In the aviation sector, aircraft fuel efficiency improvements largely come from increasing engine
efficiencies, lowering weight, and improving lift-to-drag ratios. Light-weighting aircraft by using
new materials and composites can also significantly improve fuel efficiency. Carbon-fibre
www.imacs.in

12

Industry Comment

Aluminium

reinforced plastic (CFRP) is stronger and stiffer than metals such as aluminium, titanium or steel,
but its relative weight per volume is half that of aluminium and one-fifth of the weight of steel. In
addition, CFRP suffers little corrosion and is considerably more fatigue-resistant under ideal
manufacturing conditions. One of the key issues for composite materials is to develop ways of
assuring such conditions. Full replacement of aluminium by CFRP could provide a 10% weight
reduction in medium-range aircraft, and 15% in long-range aircraft. CFRP has been increasingly
used in aircraft frame construction. For example, Boeing 787 uses CFRP for 50% of its body (on a
weight basis), with the balance being aluminium (20%), titanium (15%), steel (10%), and others
(5%). This can be compared with a similar break-down for Airbus A380, the worlds largest civil
airliner now in service, which comprises composites (22%), aluminium (61%), steel and titanium
(10%). In contrast, Boeings 777 possesses 50% aluminium and only 12% composite. The lighter
weight of Boeing 787 due to greater use of composites greatly reduces fuel burn and a side
advantage is that high humidity in the passenger cabin is possible because composites do not
corrode like aluminium. The lighter weight contributes an estimated one-third of its 20% fuel
efficiency gains compared to comparable existing aircraft. In the near and medium term, the use of
this material in wings, wing boxes and fuselages will increase as the technology matures.

D E MA N D - S U P P LY T R E N D S A N D P R O S P E C T S
World Production
World alumina production declined 10% in 2009 to 78 mt mainly because of a 6% decline in
primarily aluminium production. Alumina production declined in all regions except Asia (excluding
China) where it increased 11%. However, alumina production increased at high rates in 2010 and
2011 primarily because of strong growth in primary aluminium production. Production growth
thereafter declined to 3.4% in 2012 and 3.8% in 2013 because of slowdown in growth of primary
aluminium production. Production declined in Europe, India, and Brazil. Based on production data
from the International Aluminium Institute (IAI), bauxite production increased slightly in 2012 to
263 mt compared with production in 2011. Increases in bauxite production from expanded, new,
and reopened mines in Australia, Brazil, China, Guinea, and India were mostly offset by declines in
production from mines in Indonesia, which enacted strict mine export tariffs during 2012.

www.imacs.in

13

Industry Comment

Aluminium

Gro w th i n Wo rl d Al u mi n a a n d Pri ma ry Al u mi ni u m Pr od u cti on

35%
Alumina

30%

Aluminium

25%
20%
15%
10%
5%
0%
-5%

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013 2015F

-10%

The sharp increase in alumina demand from aluminium production in 2010 turned the global
alumina market from a surplus of 0.3 mt in 2009 to a deficit of 0.8 kt in 2010. Following the
expansion in alumina refinery capacity and slowdown in demand, the global alumina market
returned to a surplus from 2011 with the surplus increasing from 1.3 mt in 2011 to 1.8 mt in 2013.
Wo rl d Al u mi na P ro d u cti o n
Production

Growth

(mt)
Australia
Latin America
North America
Western Europe
Central & East Europe
China
India
Other Asia
Africa
World

2009

2010

2011

2012

2013

2013

2011-13

20.26
13.27
4.28
4.66
6.49
23.85
3.69
1.00
0.53
78.03

20.12
13.81
5.34
5.64
7.02
31.00
3.61
1.22
0.60
88.36

19.64
15.00
5.72
5.85
7.03
39.20
3.91
1.12
0.57
98.04

21.56
14.18
6.06
5.79
6.86
43.00
3.79
1.23
0.15
102.62

21.75
13.52
6.74
5.94
7.15
47.20
3.75
1.21

0.9%
-4.7%
11.2%
2.6%
4.2%
9.8%
-1.1%
-1.6%

2.6%
-0.7%
8.1%
1.7%
0.6%
15.0%
1.3%
-0.3%

107.26

4.5%

6.7%

Overall, alumina production is expected to increase at a lower rate of 4% in 2014 to 111 mt inspite
of a forecast lower 1.3% increase in primary aluminium production. Production growth is expected
to be at around 5.5-6% in 2015 as growth in primary aluminium production increases. Overall, the
higher increase in alumina production vis--vis aluminium production has resulted in some
alumina oversupply, especially in the Atlantic Basin. Chinas bauxite and alumina imports have
grown rapidly, driven by the doubling of domestic aluminium output since 2007. By 2013, China
accounted for 46% of global aluminium output. To support production, China imported 72 mt of
bauxite in 2013, with Indonesia supplying 49 mt, or nearly 70% of total imports into China. Chinas
bauxite production was around 47 mt in 2013. Since China started importing bauxite in 2005,
www.imacs.in

14

Industry Comment

Aluminium

about three-quarters of these imports have come from Indonesia. Since China is heavily reliant on
Indonesian bauxite, imports were notably affected by Indonesian restrictions on raw material
exports during May-November 2012. Although Indonesias export restrictions subsequently
evaporated, China's bauxite imports from Indonesia have continued to be high as producers are
building inventories as a buffer against export policy confusion in Indonesia. In January 2014,
Indonesia banned exports of unprocessed ore, seeking to spur investment in processing. With
supply difficulties from Indonesia, China has also increased its bauxite imports from Australia and
India, as producers have tried to limit their exposure to Indonesian disruptions. Australia, through
Rio Tinto, has emerged as the major exporter to China, supplying 14.3 mt in 2013. Australia is now
the principal supplier of bauxite to China, accounting for 55% of the Chinese import market. Other
major suppliers include India which accounted for 22% of Chinas imports and Malaysia which
accounted for 13%. Australian bauxite producers have been a major beneficiary of Indonesias
announced ban. With the Indonesian ban set to remain in place during 2015 and increased supply
of bauxite available from Australia, Australias exports of bauxite are forecast to increase by 17% in
2014-15 to 18 mt. Australias bauxite exports have also been supported by the closure of the Gove
alumina refinery as bauxite previously supplying this facility will be exported.
According to data by the IAI, production growth of metallurgical alumina during 2011-14 peaked
at 13.4% in 2Q2011, but has thereafter been declining to 1.7% in 2Q2014. Production declined
1.9% in 3Q2014 primarily because of slower growth in China; and declines in North/South America
and Europe. In the first nine of 2014, the global output of alumina was approximately 76 mt,
representing a (yoy) increase of 1.9%. Chinas output of alumina increased 4.6% to 33.4 mt.
However, output declined 5% in North America and 2.7% in Australia.
Wo rl d M et a l l u r gi ca l Al umi na P ro d uc ti o n
thousand tonnes
10,000

Others-LS

China-LS

Growth-RS

Growth ex. China-RS

9,000

20%
15%

8,000
10%

7,000
6,000

5%

5,000
0%

4,000
3,000

-5%

2,000
-10%

1,000

-15%
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14

www.imacs.in

15

Industry Comment

Aluminium

Over the period 2003-14, Chinas aluminium production increased 5.6 times, and China accounted
for an estimated 90% of total growth in global production during the period. The other major
contributors have been UAE and India, with growth in UAE being higher from 2008-09. By
comparison, production has declined in high cost countries/regions such as US and EU. The Middle
East (especially Bahrain, UAE, and Qatar) has seen a substantial increase in production during 200414, and this trend is expected to continue.
Given that during 2014, China accounted for around 52% of world production and 49% of
consumption; China's production and consumption levels remain critical to the balance of the
market.
Wo rl d Pri ma ry Al umi ni um P ro d uc ti o n
Production

Growth

(thousand tonnes)
Country

2008

2009

2010

2011

2012

2013

2012

2013

2009-

12,891
3,815
3,030
1,727
1,945
1,010
1,479
1,535
1,098
848
805
809
37,162

16,244
3,947
2,963
1,727
1,928
1,400
1,610
1,536
1,090
851
826
806
41,504

18,135
3,992
2,988
1,983
1,945
1,750
1,660
1,440
1,202
881
781
808
44,776

20,267
4,024
2,781
2,070
1,864
1,861
1,714
1,436
1,202
890
803
665
46,339

22,046
3,724
2,967
1,948
1,777
1,864
1,571
1,304
1,202
913
815
822
47,693

11.8%
0.8%
-6.9%
4.4%
-4.1%
6.3%
3.3%
-0.3%
0.0%
1.0%
2.8%
-17.7%
3.5%

8.8%
-7.5%
6.7%
-5.9%
-4.7%
0.2%
-8.3%
-9.2%
0.0%
2.5%
1.5%
23.6%
2.9%

10.8%
-2.3%
-1.0%
-6.0%
-2.1%
15.9%
3.7%
-4.7%
-2.5%
0.9%
1.4%
0.3%
3.6%

13
China
13,178
Russian Federation 4,190
Canada
3,119
US
2,659
Australia
1,974
UAE
892
India
1,308
Brazil
1,661
Norway
1,368
Bahrain
872
Iceland
760
South Africa
811
World
39,960

After dramatic cutbacks in the first half of 2009 resulting in world primary aluminium production
declining 6.2% in 2009, aluminium production recovered strongly during the latter months of 2009
and into 2010 and 2011. Output growth was driven by the restart of idle capacity at independent
Chinese smelters, with high increases at those considered to be `swing capacity. At the same time,
large smelters with a capacity of 1.3 mt started production in the Middle East. The slowdown in
production and subsequent decline during 2009 was caused primarily because of a sharp
contraction in demand from main user segments. The global financial crisis resulted in a rapid
slowing of construction and manufacturing, leading to weak growth in world aluminium
consumption and production during 2008 and 2009. World consumption of primary aluminium
increased 16.2% in 2010, reversing two consecutive years of falling demand. From September 2009
consumption began to recover strongly. The recovery in aluminium consumption was robust
relative to other base metals because it was strongly influenced by the construction sector, which
had been relatively weak in developed economies. The economic recovery in 2010 led to strong
demand from the electronics sector (which favours aluminium because it is lightweight and
recyclable) and the aerospace and automotive sectors. However, tighter economic policy
conditions in the EU and China weakened growth in global consumption of aluminium from the
www.imacs.in

16

Industry Comment

Aluminium

latter half of 2010 and into 2011, owing to a fall in consumer confidence, lower investment
spending and an end to the cycle of restocking in the developed world.
Gro w th i n Wo rl d Al u mi ni u m Pr od u cti on a n d C ons u m p ti o n
20%

3,000

Surplus-kt
Production

15%

2,500

Consumption

2,000
10%

1,500
1,000

5%
500
0%

0
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014F
-500

-5%
-1,000
-10%

-1,500

World primary aluminium production growth declined to 3.5% in 2012 to 46.4 mt. The primary
reason was slower growth was a slowdown in consumption demand from late-2011. In addition,
high energy costs and environmental issues also limited output growth. Production cuts by high
cost producers also caused a slowdown in production. In late 2011, high-cost aluminium
producers, including Rio Tinto (UK/Australia), Alcoa (US) and Norsk Hydro (Norway), announced
plans to cut back production in 2012 in response to lower prevailing prices. On a global basis,
around 20 mtpa of capacity was accounted for by producers whose cash costs exceed $2,100/t. Of
these, nearly 75% were in China, followed by North America (7%), Europe (7%), and South America
(6%). Alcoa announced plans to permanently close a number of its higher-cost smelting operations
in response to high energy costs and lower aluminium prices. The closures included the
Portovesme smelter in Italy and La Corua and Avils operations in Spain as well as two smelters in
the US (Rockdale, Texas and Alcoa, Tennessee). Together, the production plant closures amounted
to a reduction of 531 ktpa of production capacity. Rio Tinto Alcan also announced the permanent
closure of the 275 ktpa Zeeland Aluminium smelter (ZALCO) in the Netherlands. Norsk Hydro also
announced that it would not restart idled capacity at its Sunndal primary aluminium smelter
(annual capacity of 400 kt) in Norway until market conditions improve. Meanwhile, in addition to
production cutbacks due to lower prices, there were also an unusually large number of production
disruptions due to accidents, technical problems, and other factors. However, measures to cut
production were modest and inadequate in the face of weak demand. The International Aluminium
Institute (IAI) estimated members voluntary curtailments in 2012 amounted to about 1.1 mtpa of
smelting capacity. In addition, around 800 kt of production was lost due to involuntary stoppages.

www.imacs.in

17

Industry Comment

Aluminium

World aluminium production increased at a slower rate of 2.9% in 2013 to around 47.7 mt.
Announced production curtailments and smelter closures to correct market oversupply caused
production to increase at a lower rate in 2013. Total capacity cuts were around 3 mt by the end of
2013 as companies responded to lower prices and market oversupply. In China, production growth
slowed down from 11.8% in 2012 to 8.8% in 2013. Weak margins prompted cuts affecting almost
1.2 mt of capacity in the first half of 2013. However, many plants since resumed operations. New
smelter capacity far outpaced those temporary cuts in 2013 and production increased by 1.8 mt in
2013. Excluding China, world production declined 1.6% in 2013, compared with a decline of 2.1% in
2012. Voluntary cuts outside China were around 2.2 mt in 2013. Cuts were primary is US, Brazil, and
Russia. In May 2013, Alcoa announced that it would review 460 kt of smelting capacity over a 15month period for possible curtailment. This review was aimed at maintaining Alcoas
competitiveness despite falling aluminium prices and would focus on the highest-cost smelting
capacity and those plants that have long-term risk due to factors such as energy costs or
regulatory uncertainty. Alcoas review of its primary metals operations is consistent with the
companys 2015 goal of lowering its position on the world aluminium production cost curve by ten
percentage points and the alumina cost curve by seven percentage points. Rusalthe worlds
largest producer with production of 3.9 mt in 2013cut production by 8% or 316 kt in 2013.
World aluminium production is estimated to have increased by 1.3% in 2014 to 48.3 mt. Excluding
China, world production declined 1.1% in 2014. Production increased at a high rate of 11% in China
and 12% in UAE. However, production is estimated to have declined at high rates in Russia,
Canada, EU, US, and Australia. The program of closures and curtailments undertaken principally by
Rusal and Alcoa appear to have had an effect, with production growth slowing considerably.
Rusals aluminium output amounted to 2.69 mt during 9M2014, representing a decrease of 9%
(267 kt) as compared to 2.95 mt in 9M2013 reflecting the successful completion of 2012-2013
capacity curtailments program at the less efficient smelters. Alcoa also cut production by 290 kt to
2.39 mt during 9M2014. At September 30, 2014, Alcoa had 665 kt of idle capacity on a base
capacity of 3,613 kt. As part of its review, Alcoa initiated the permanent shutdown of 146 kt of
combined capacity at the Baie Comeau smelter in Quebec, Canada and the Massena East smelter in
New York, as well as a temporary curtailment of 131 kt of combined capacity at the So Lus and
Poos de Caldas smelters, both in Brazil. All of these actions were completed in 2013. During the
first quarter of 2014, it initiated three additional actions resulting in the permanent shutdown of an
additional 274 kt of capacity and the temporary curtailment of an additional 147 kt of capacity. In
3Q2014, Alcoa approved the permanent shutdown of 150 ktpa at the Portovesme smelter in Italy,
which has been idle since November 2012. Overall closures have moderated the strong increase in
Chinas aluminium production. A renewed focus on productivity supported production increases in
the provinces of Gansu, Shaanxi, Xinjiang and Inner Mongolia. In China, production cuts have been
lower against a background of large capacity additions, largely in China's north-west where access
to low-cost coal-based energy has fuelled capacity expansions. However, older, less energyefficient plants have come under pressure to close. Expansions in the Middle East have also
countered the effects of production cuts suspensions. Most of the projects in the Middle East entail
access to low-cost energy and programs are likely to be unaffected by weakening product prices.
In 2008, the countries of the Gulf Cooperation Council (GCC) had two smelters (Dubal and

www.imacs.in

18

Industry Comment

Aluminium

Aluminium Bahrain), which produced 1.92 mtpa. At present, there are six smelters with an annual
production capacity of 4.9 mtpa.
From late-2008 when the international financial crisis posed a deepening impact on enterprises'
results, major aluminium consuming sectors such as the construction and automotive sectors saw
negative growth in 2009, followed by decreased global aluminium consumption and increase in
inventories. In light of the sharp decline in aluminium prices and decreased consumption,
international aluminium producers reduced production. As of the end of December 2008,
approximately 13.5% of the global aluminium production capacity was idled, while in China,
approximately 24.1% of the aluminium production capacity was idled. Because of the decrease in
the production of primary aluminium, the demand for alumina decreased accordingly, and the
global alumina manufacturers started to reduce their production in the fourth quarter of 2008. As
of December 31, 2008, approximately 9.8% of the global alumina production capacity was idled,
while in China, approximately 24.4% of the alumina production capacity was idled. During 2009,
after declining to a low of 79% in April 2009, global capacity utilisation rebounded to 89% by
November 2009, and stabilised at that level in February-June 2010. This recovery was supported by
the restart of production at independent Chinese smelters, with those considered to be `swing
capacity increasing utilisation from a low point of 64% in March 2009 to over 90% in FebruaryJune 2010. Overall, global smelter capacity utilisation averaged 88% in 2010, which is lower than
any year since 1983, apart from 2009. During 2011, global capacity utilisation of aluminium
smelters increased further. As at the end of June 2011, the global production capacity utilisation
rate of aluminium was approximately 83% while the production capacity utilisation rate in China
was approximately 87%. However, utilisation rates in China declined during 2H2011. As of the end
of December 2011, the global capacity utilisation rate of primary aluminium was 84%, while the
utilisation rate in China was 83%.
Since the beginning of 2012, the global alumina operating production capacity further increased.
However, China's alumina enterprises saw a moderate decline in the production capacity utilisation
rate due to the shutdown of part of their production capacities, which was caused by a change in
Indonesia's bauxite export policy restricting the export of bauxite in April 2012. By the end of June
2012, the production capacity utilisation rate of global alumina was approximately 79% while that
of China was approximately 81.6%. As at the end of June 2012, the global production capacity
utilisation rate of aluminium was approximately 82% while that of China was approximately 79.9%.
Alumina capacity utilisation continued to increase in the second half of 2012. As of the end of
December 2012, the global alumina capacity utilisation rate was 85%, while it was 73% in China.
In 2013, the global capacity of alumina continued to increase. The increase in Chinas alumina
capacity exceeded that of the international market. The global capacity utilisation rate of alumina
was approximately 77.7% as at the end of June 2013 while that of China was approximately 84.1%.
From January to June 2013, the global capacity of primary aluminium continued to increase. As at
the end of June 2013, the global capacity utilisation rate of primary aluminium was approximately
85.7%, while that of China was approximately 89.3%. However, capacity utilisation fell in the second
half of 2013. As of the end of December in 2013, the global capacity utilisation rate of primary
aluminium was 78.5%, while it was 79.8% in China.
www.imacs.in

19

Industry Comment

Aluminium

In the first half of 2014, the global output and consumption of primary aluminium were
approximately 26.25 mt and 26.08 mit, respectively. China's output and consumption of primary
aluminium were 13.51 mt and 13.75 mt, respectively. As at the end of June 2014, the global
capacity utilisation rate of primary aluminium was approximately 79.6%, while that of China was
approximately 81.1%. China's overcapacity is exacerbated by deep vertical integration, both
upstream and into fabrication. Decisions to shut smelters therefore hinge on broader
considerations than direct costs.
In recent years, the Chinese primary aluminium industry has been impacted by government efforts
to cut pollution, curb the expansion of energy-intensive industries and bolster efficiency. The
Chinese government is encouraging consolidation in the industry to create larger, more efficient
producers that are better positioned to implement measures to reduce emissions. Given the high
electricity intensity of aluminium production, the Chinese Government has indicated its desire to
limit the production of aluminium in an effort to conserve power supplies. Current policy is aimed
at curbing the addition of new aluminium smelting capacity through regulations on the size, capital
investment requirements, and environmental standards of new smelters. The larger smelters are
being granted favourable treatment, including priority in the allocation of raw materials and
electricity supplies and prices. These preferential treatments, especially discounts in electricity
prices, give large domestic smelters a stronger competitive advantage over small domestic
smelters. In addition, since January 1, 2005, the Chinese government has prohibited domestic
aluminium smelters whose annual production capacity is lower than 0.1 mtpa from directly
importing alumina (which is more cost-competitive to Chinese producers) to China. As of end2011, there were approximately 67 primary aluminium smelting companies operating in China,
which sell substantially all of their products in China. Only 20 primary aluminium producers in
China have annual production capacities of 300 kt or more, which represent approximately 57% of
the total primary aluminium production capacity in China. Only seven primary aluminium
producers in China have annual production capacity of 500 kt or more. The Chinese Government
has encouraged consolidation in the Chinese primary aluminium industry to create larger, more
efficient producers that are better positioned to implement measures to reduce emissions.
Moreover, from 2007, new aluminium projects for expanding production capacity must be
approved by the relevant department of the State Council of China. As of 2012, the Government is
not approving any new aluminium projects except those environmental protection upgrade
projects and expired equipment exchange projects planned by the government.
China released the National Climate Change Programme (NCCP) in July 2007, and a White Paper
entitled Chinas Policies and Actions for Addressing Climate Change in October 2008. The NCCP
outlines the impacts that China faces from climate change. A key to the countrys contribution to
lower greenhouse gases is its official energy efficiency objective of reducing energy consumption
per unit of GDP by 20% by 2010, and of quadrupling GDP between 2000 and 2020 while only
doubling energy use. In addition to this general goal, the government is to take measures to close
small, less efficient industrial facilities in sectors including iron and steel, cement, aluminium,
copper, glass or ceramics.

www.imacs.in

20

Industry Comment

Aluminium

In July 2013, in order to improve the efficiency and competitiveness of the Chinese alumina
industry as well as to protect the environment, the government published `Standard Conditions for
Aluminium Industry pursuant to which any new alumina project must be approved by the relevant
department of the State Council of China and meet the requirements for annual production
capacity and raw materials supply. The Standard Conditions have established a high entry barrier
for new alumina producers in China. China also set lower electricity consumption limits for
aluminium smelters. Under the new rules, power consumption for new and upgraded aluminium
smelters will need to be below 12,750 kilowatt hours per tonne (Kwh/t) for the liquid form and
13,200 Kwh for ingots, while consumption for existing capacity will be required to be below 13,350
Kwh and 13,800 Kwh, respectively. Electricity rates have also been changed for various smelters
from January 1, 2014. Specifically, if the alternating current consumed by any smelter is between
13,700-13,800 kWh/tonne, such smelter must pay additional RMB0.02 per kWh for the electricity
used. If the alternating current consumed by any smelter is more than 13,800 kWh per tonne, such
smelter must pay additional RMB 0.08 for per kWh for the electricity used.
In 2015, world aluminium production is forecast to increase by 2.9% to 49.7 mt. China is forecast to
remain the key driver of world production growth in 2015, with production forecast to increase
4.5% to 24.7 mt. Although older, less energy-efficient plants will continue to be under pressure to
close, new capacity additions (around 5.2 mt in 2014) will imply that China's primary aluminium
output will continue to expand at a high rate. Aluminium production is forecast to decline/stagnate
in the OECD economies. A number of smelters in Australia, the EU and Canada have curtailed
output in response to declining prices, high stock levels and rising input cost pressures, particularly
rising energy costs. Growth in aluminium production is expected to come mainly from Asia (China)
and Middle East (UAE) where large increases in smelter capacity in recent years have contributed
significantly to growth in world aluminium production. However, output growth in India could be
lower than earlier forecast because of current market conditions and recent deallocation of coal
blocks (which could cause higher costs).
Production in the Middle East is projected to increase at an average annual rate of 10% to 7.8 mt
by 2018. High levels of capital investment in the industry, supported by access to cheap energy in
the region, could drive the increase. In the near-term, progress has been reported to be going well
at Ma'aden's new plant in Saudi Arabia (740 ktpa). This joint venture between Alcoa and the Saudi
Arabian Mining Co. produced its first alumina in late-2014. The alumina will feed into the Maaden
Aluminium Smelter which produces the aluminium needed for the Maaden Aluminium Rolling Mill.
At full capacity, the refinery will produce 1.8 mtpa of alumina, and the output is expected to be
used for the 740 ktpa smelter. The 500 ktpa expansion to 1.3 mtpa at Emirates Aluminium smelter
has also made faster progress than expected.
During 2010, Indias primary aluminium production increased 8.9% to 1,610 kt. Production
increased 8.4% (yoy) in 4Q2010, compared with growth of 8.5% (yoy) in 3Q2010, and 8.2% (yoy) in
4Q2009. During 2010, Hindalcos aluminium production declined 2.2% to 539 kt. Operations of
aluminium smelter at Hirakud were affected since July 2010 because of pot outages caused by
heavy rains and lightning. However, Nalcos production increased 7.5% during 2010 to 445 kt.
Aluminium production of Balco declined 9.6% to 256 kt primarily on account of the complete ramp
www.imacs.in

21

Industry Comment

Aluminium

down of the BALCO plant I smelter. However, a group companyVALcommenced production in

FY2009, and reported a 60.7% increase in aluminium production to 370 kt in 2010. During 2011,
primary aluminium production in India increased 3.1% to 1,660 kilotonnes (kt). On a fiscal year (FY)
basis, production increased 3% during FY2012 to 1,668 kt, compared with an increase of 0.6% in
FY2011. Production declined 0.2% (yoy) in 4Q2011, but increased 1.9% in 1Q2012. During 2012,
Indias primary aluminium production increased only 3.3% to 1,714 kt. Production increased 7.1%
during 3Q2012 and 5.6% in 4Q2012 primarily because of substantially higher production by
Vedanta Aluminium Ltd (VAL), now Sesa Sterlite Limited (SSL). Except for SSL, all the primary
producers reported declines or low growth in production.
In di as Al u mi ni u m Pr od uc ti o n an d G ro w th
Thousand tonnes
Consumption

25%

Growth

2,000

5-year CAGR (2010-14)

1,800

1,660
1,610

1,600

1,479

1,400

1,590

799

800
547 545

621 649 624

861

20%
15%
10%

1,105

1,000

600

1,714
1,569

1,308
1,222

1,200

1,700

5%

942
0%

671
-5%

400

-10%
1997

1999

2001

2003

2005

2007

2009

2011

2013

2015F

During 2013, Indias primary aluminium production declined 8.3% to 1,569 kt. Production declined
in all the four quarters of FY2014. Except for VAL/Sesa Sterlite and Balco, all the primary producers
reported declines.

www.imacs.in

22

Industry Comment

Aluminium

In di as Al u mi ni u m Pr od uc ti o n
thousand tonnes
160,000

25%

Production
Growth (yoy)

20%

150,000

15%

140,000

10%
5%

130,000

0%

120,000

-5%
-10%

110,000

-15%
-20%
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14

100,000

During 9M2014, Indias primary aluminium production declined 0.7% to 1,182 kt. However, after
four successive quarters of decline, production increased 2.4% in Q1FY2015. The growth in
Q1FY2015 was primarily because of ramp up of production by Hindalco, following four quarters of
high declines. Production increased by a substantially higher rate of 9.6% in Q2FY2015 because of
strong growth reported by Hindalco and Balco. Hindalcos metal production was up substantially
to 187 kt in Q2FY2015, compared with 140 kt in Q2FY214, consequent to the ongoing ramp-up at
Mahan smelter.
Al umi ni u m P ro d uc ti o n
tonnes
Tonnes
9M
Nalco
Hindalco
Balco
Vedanta/Sesa Ster.
Total

Growth
9M

2013

2014

257,168
342,655
186,883
403,830
1,190,536

238,777
307,167
227,919
407,815
1,181,678

-7.2%
-10.4%
22.0%
1.0%
-0.7%

www.imacs.in

Tonnes

Growth

H1

H1

FY2014

FY2015

159,107
200,165
125,719
270,897
755,888

161,276
204,885
158,986
270,152
795,299

1.4%
2.4%
26.5%
-0.3%
5.2%

23

Industry Comment

Aluminium

Gro w th i n P ri ma ry Al umi ni u m P ro d uc ti o n
(yoy)
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15

Nalco

Hindalco

Balco

20.5%
13.8%
24.7%
18.4%
6.6%
6.3%
0.0%
-1.2%
-0.7%
-4.4%
-15.8%
-6.6%
-7.2%
-2.3%
7.3%
-5.8%
-17.8%
-27.1%
-21.4%
-19.9%
-6.1%
8.4%

9.1%
6.7%
5.1%
4.1%
3.6%
-12.2%
-3.9%
-0.2%
0.3%
16.4%
7.2%
4.5%
-6.4%
-10.5%
-4.5%
-2.0%
-23.0%
-22.6%
-27.9%
-27.8%
0.7%
3.5%

-20.4%
-30.0%
-30.8%
-24.4%
-11.4%
1.0%
1.6%
-4.9%
-2.5%
-5.3%
-3.0%
0.6%
0.1%
3.5%
-1.0%
0.1%
0.9%
0.2%
3.4%
4.5%
20.4%
40.3%

Vedanta

Total

98.9%
88.7%
31.0%
72.6%
55.8%
15.2%
48.2%
-6.3%
8.8%
8.1%
9.3%
47.8%
21.2%
13.0%
8.2%
1.9%
1.2%
1.9%
0.8%
0.4%

19.3%
12.7%
8.2%
12.8%
5.9%
8.5%
8.4%
2.3%
8.9%
1.5%
-0.2%
1.9%
-1.5%
7.1%
5.6%
1.5%
-9.0%
-12.6%
-13.0%
-12.4%
2.4%
9.6%

World Consumption
Metals (including aluminium, copper, and steel) consumption is positively correlated with industrial
production, with the estimated elasticity of demand with respect to industrial production
somewhat higher at 1.2 in developing countries than for industrialised economies (1.0). Metals
demand is also positively correlated with the real gross domestic product (GDP) as the nation
gradually evolves from a traditional society into an industrialised one. Another interesting measure
of metals demand trends is the trend in per capita consumption over time. Historical trends have
shown increases in per capita consumption with increases in per capita income up to a point
($15,000-20,000 in purchasing power parity), with reductions in per capita consumption thereafter.
Looking forward, it is clear that as developing countries industrialise, they will increase their per
capita consumption of aluminium and other metals.

www.imacs.in

24

Industry Comment

Aluminium

Per Ca pi ta Al u mi ni u m C ons u m p ti o n i n S e l ec t Eco no mi es

Kg per annum
30

Japan

US

Korea

China

25

20

15

10

0
1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

After a strong growth in world consumption during 2002-07, world aluminium consumption
declined 1.4% in 2008, and 6.3% in 2009. The decline in 2008-09 was caused by substantial
slowdown in Chinas consumption growth. Excluding China, consumption declined for three
successive years from 2007, with consumption declining 2.3% in 2008, and 17.2% in 2009. After
increasing in the first half of the year, consumption growth slowed markedly from late-2008. The
global financial crisis resulted in a rapid slowing of construction and manufacturing, leading to
weakening growth in world aluminium consumption. In China, growth in aluminium consumption
in the first half of 2008 was relatively strong. This was supported by consumption of aluminium in
industrial and commercial applications such as electricity transmission infrastructure. In the US,
annual aluminium consumption peaked at 6.15 mt in 2006, but declined to 4.91 mt in 2009. This
was a result of the flow on effects from the global financial crisis and associated effects from
declining housing construction, vehicle manufacturing and consumer spending.
World aluminium consumption continued to decline in 2009. Chinas consumption increased 15.8%
to 14.3 mt, primarily because of the effects of the stimulus package. Other countries reporting high
growth included India. Lower industrial activity in most developed economies reduced demand for
aluminium used in applications such as ship building, construction, and manufacture of consumer
durables and automobiles. In the USthe second largest marketapparent consumption declined
for the third consecutive year. However, US consumption recovered since the second half of 2009.
In the EU, despite the various stimulus packages and the success of the car scrappage schemes in
Germany and the UK, consumption declined 26% to 5.2 mt. Japan experienced the largest
contraction in aluminium demand of any country in 2009, with consumption declining 31% to 1.52
mt, the lowest level since 1982, as export markets for Japanese products were badly affected in the
first half of 2009.

www.imacs.in

25

Industry Comment

Aluminium

Following two years of decline, primary aluminium consumption recovered strongly in 2010,
increasing by 16.2% to 40.2 mt. Excluding China, world consumption increased 20% in 2010 with
especially high growth in the developed economies. The economic recovery in 2010 led to strong
demand from the electronics sector (which favours aluminium because it is lightweight and
recyclable), aerospace, and automotive sectors. In the first half of 2010, China's growth in
aluminium consumption was driven by ongoing expansion of the aluminium-consuming sectors,
and the government's stimulus package. However, consumption growth slowed down in the
second half of 2010 in response to government efforts to cool the economy, combined with
uncertainty about prospects for export markets. Consumption in the EU increased 34% in 2010 to
6.8 mt, compared with a decline of 27.8% in 2009. High growth was driven by low base of
comparison and was boosted by restocking. Of the aluminium-using industries in EU, the
automotive sector was one of the main drivers of the recovery in 2010. Exports of premium cars to
Asia boosted demand for rolled products and use of aluminium in volume cars became more
widespread due to increased focus on light weighting. Later in 2010, demand in the mass transport
sector also picked up. Demand for aluminium cans and foil was much less affected by the 2008-09
crisis and growth continued at a stable rate. Recovery in the building sector however presented a
mixed picture in Europe, due to longer economic cycles in this sector. India's consumption
increased 1.1% in 2010, primarily because of the base effect, but also because of deceleration in
manufacturing production from the second half of 2010.
Wo rl d Al u mi ni u m C o ns um p ti o n
Consumption

Growth

(thousand tonnes)
Country

2008

2009

2010

2011

2012

2013

2012

2013

200913

China
12,413
US
4,906
Germany
1,936
Japan
2,250
India
1,284
Korea, Rep. of
964
Brazil
932
Turkey
576
Italy
951
Russian Federation 1,020
France
689
Thailand
407
World
36,900

14,300
3,854
1,277
1,523
1,458
1,038
799
544
661
750
538
330
34,572

15,854
4,242
1,912
2,025
1,475
1,255
985
703
867
685
549
429
40,181

17,702
4,060
2,103
1,946
1,569
1,233
1,077
870
982
685
584
404
42,471

20,274
4,845
2,086
1,982
1,690
1,278
1,021
925
754
685
546
479
45,543

21,955
4,633
2,083
1,772
1,534
1,241
988
867
709
685
588
508
46,236

14.5%
19.3%
-0.8%
1.8%
7.7%
3.7%
-5.2%
6.3%
-23.2%
0.0%
-6.4%
18.4%
7.2%

8.3%
-4.4%
-0.1%
-10.6%
-9.2%
-2.9%
-3.2%
-6.3%
-6.0%
0.0%
7.7%
6.1%
1.5%

12.1%
-1.1%
1.5%
-4.7%
3.6%
5.2%
1.2%
8.5%
-5.7%
-7.7%
-3.1%
4.5%
4.6%

World aluminium consumption growth moderated to 5.7% in 2011, primarily because of declines in
US and Japan. Although Chinas consumption growth was high at 11.7% in 2011, growth was
driven by restocking even as real demand growth was lower. In the developed economies.
persistent economic uncertainty undermined business confidence and investment in much of the
EU and US. US aluminium demand declined 4.3% in 2011, primarily because of slowdown in the
automotive sector. In Japan, consumption declined 3.9% in 2011 because of severe disruptions to
the manufacturing supply chain and consumer sentiment as a result of the earthquake and nuclear
www.imacs.in

26

Industry Comment

Aluminium

disaster in March 2011. Indias consumption increased 6.4% in 2011 primarily because of high
growth in the first half of 2011 in the construction and automotive sector.
World aluminium demand increased 7.2% in 2012 to 45.5 mt primarily because of high increases in
US, China, and India; and partial recovery in Japan. By comparison, consumption declined 7% in the
EU. Consumption increased at high rates in China and India, reflecting continued strong
consumption growth in China stemming from growth in construction and manufacturing activities.
Aluminium consumption growth in China was supported by residential and non-residential
property construction, electricity transmission network construction, and manufacture of
aluminium-intensive products for both domestic and export markets. Demand in the US, the
largest OECD consumer of aluminium, increased 19% in 2012 because of the strong performance
by the US automotive sector. Demand from the construction sector also increased as the housing
market showed noticeable improvement, with home sales rising steadily and house prices up. In
Japan, demand increased 1.8% in 2012 because of base effect and higher demand stemming from
the post-quake reconstruction phase. Furthermore, automotive production was strong since the
beginning of 2012, buoyed by tax incentives on car purchases. Consumption growth was lower as
the year progressed. The deceleration in world trade and the persistent strength of the yen stalled
exports. Domestic demand also slowed, in part as the phasing out of government subsidies to
promote car purchases weakened private consumption. Indias consumption increased 7.7% in
2012 primarily because of high increases in the early part of the year. However, growth declined
subsequently because of substantial slowdown in construction and automotive sectors, and weaker
business confidence. EU aluminium consumption rose by just 2.4% in 2011, supported by
continued expansion in the German automotive sector. However, consumption declined 8% in
2012 because of contraction in regional GDP, weak property markets, fiscal tightening and the end
of the restocking cycle. Household consumption, business investment and government spending
all contracted, and export demand weakened. The simultaneous fiscal consolidation in almost all
euro area countries and private sector deleveraging in high-debt economies weakened confidence.
These negative trends were only partly offset by some resilience in the German economy, where
aluminium demand declined at a lower rate.
Aided by strong growth within Asia and the US, world aluminium consumption rose by 1.5% in
2013 to 46.2 mt, with ex-China consumption declining by 3.4%. Consumption in China grew by
8.3%, However, consumption declined in India and Japan. Chinese fixed-asset investment
increased 19.6%. New construction projects rose 13.5% in 2013. During 2013, the Chinese
automotive industry was the top gainer, surging 14.9% with record sales of 22 million vehicles. In
South East Asia, the transport sector remained strong, with Thailand continuing to be a leader in
automotive production in the region. Construction activity also grew in the region, led by
infrastructure development and the building of new houses. In Japan, following industrial
production weakness experienced during the first nine months of 2013, economic indicators in late
2013 signalled improved market conditions, and helped reverse declines in demand. In North
America, the transport sector remained the main driver of aluminium consumption growth in the
region. Light vehicle production in North America increased 4.3% in 2013. Demand was driven by
increased demand for aluminium automotive body sheets and announced expansions by
aluminium rollers to meet the demand. Although EU demand declined 2.8% in 2013, demand
www.imacs.in

27

Industry Comment

Aluminium

experienced a strong rebound in 4Q2013, with the biggest increase from Turkey, Germany, and
France.
Although the global economic backdrop has become increasingly challenging during the second
half of 2014, world apparent consumption of aluminium is estimated to have increased 5% in 2014
to 48.5 mt driven by strong growth in China, US, and Japan. Demand growth also showed an
acceleration in Brazil, South Korea and Turkey. Demand however declined 7% in India. In China,
demand increased at a marginally lower rate of 8% in 2014. China has been transitioning to more
moderate growth of 7-8% from 2012 (compared with >9% during 2002-11), and a rebalancing of
demand from investment to consumption. The gradual decline in GDP growth in China continued
in 3Q2014. Consumption and trade were the main growth drivers, while the contribution from
investment weakened, mainly reflecting a slowdown in housing investment and a moderation in
credit growth. Chinas housing market, although still deteriorating, is showing signs of a tentative
stabilisation. The pace of decline in housing activity and prices has however abated, with a number
of measures by central and local authorities over recent months. The sharp slowdown in economic
activity has prompted the introduction of a series of mini stimuli, accompanied by a recent acrossthe-board reduction in policy rates. The Chinese authorities continue to emphasise that China is
moving towards a lower, but more sustainable, growth path and that growth expectations should
be adapted accordingly. In the US, demand increased at a high rate of 4% in 2014 primarily
because of stronger growth from 2Q2014. Demand declined in 1Q2014 largely reflecting unusually
severe weather conditions that depressed economic activity. Subsequently, the economic recovery
has gained traction supported by favourable housing and labour market developments. Personal
consumption expenditure and private fixed investment also contributed positively to growth,
confirming the robust economic fundamentals. The US economy is likely to maintain a positive
growth momentum in 4Q2014, although real GDP growth may slow down somewhat compared
with the previous two quarters. For 2015, consumption and investment could be supported by
positive wealth effects, continued improvements in labour market conditions that lead to higher
growth in disposable income, high levels of consumer sentiment and, significant decline in
gasoline prices. In Japan, although demand increased 16% in 2014, growth tapered off from
2Q2014. Demand growth was high in 1Q2014 because of heavy restocking ahead of increase in
consumption tax rate (from 5% to 8%) in April 2014. Economic activity in Japan has been
weakening in recent quarters. This followed a substantial expansion in 1Q2014 driven by frontloading of private consumption in advance of the consumption tax increase. Because of sharp
declines in 2Q/3Q2014, the government has announced that the increase in the consumption tax
rate from 8% to 10% that had been scheduled for October 2015 will now be postponed to at least
18 months till April 2017. Demand in EU declined 0.5% in 2014. Although the euro area emerged
out of recession in 2013, the underlying recovery remains relatively slow and has lost momentum.
Gross fixed capital formation has had a neutral contribution to GDP growth. Most recent survey
results signal mixed developments. While the European Commissions Economic Sentiment
Indicator was above 100 for 2014, the indicator has declined from 102.6 in May 2014 to 100.7 in
December 2014. The composite output Purchasing Managers Index (PMI) has also declined, but
remains in line with positive but moderate growth.

www.imacs.in

28

Industry Comment

Aluminium

World aluminium consumption is expected to increase 2% in 2015 to 49.7 mt, with demand growth
in China expected at 2%. Growth is expected to moderate as Chinas general economic slowdown
results in lower growth in manufacturing output. US aluminium consumption is estimated to have
increased by 4% in 2014 to 4.9 mt, supported by resurgence in construction and automotive
production. These industries are expected to continue to drive consumption growth in 2015, which
is forecast to increase by 5%. In 2014 aluminium consumption in Europe is estimated to have
contracted 0.3% to 7.6 mt. Consumption of aluminium intensive products such as automobiles and
household goods have been subdued. In 2015, Europes aluminium consumption is forecast to
increase by 0.3% to 7.6 mt.
Over the past few decades, aluminium has been the most important substitute for copper, taking
over substantial market segments, on account of its conductivity of electricity and heat, its low
weight, corrosion characteristics, and lower prices relative to copper. Aluminium weighs about onethird as much as steel or copper. It is malleable, ductile, and easily machined and cast; and has
excellent corrosion resistance and durability. However, in some applications, despite being
cheaper, aluminium substitution has been restrained. For example, in car radiators, although
copper is more expensive, it has superior corrosion and heat conductivity characteristics. Hence, a
copper radiator is expected to last longer, and less metal is required for a given cooling
performance. Copper is also easy to work with, simplifying and cheapening the manufacturing
process, especially where soldering and brazing are involved. Even after 40 years of competition,
copper is maintaining a 40% share of the car radiator market.
Aluminium has been taking over copper's traditional markets in important electrical applications.
One such market is for overhead conductors and underground cables for carrying electricity.
Though aluminium is not as good an electrical conductor measured per unit of weight, its lightness
and tensile strength makes aluminium cables of a given carrying capacity both lighter and stronger
and far cheaper than cables made of copper. For these reasons, aluminium has come to dominate
long distance electricity transmission in recent decades. On the other hand, where space, cross
section, ease of jointing and ability to stand high temperatures are of concern, e.g. in bus bars,
switchgear, transformers and electrical generators, copper has been able to maintain its
competitiveness.
Since June 2002, aluminium prices have declined relative to copper, and were on average only 27%
of copper prices in 2010-14. Further, although coppers price decline during 2012-14 has kept the
absolute price differential below 2011 peak of $6,427/t, it was $4,995/t in 2014.

www.imacs.in

29

Industry Comment

Aluminium

Wo rl d Al u mi ni u m a n d Co p pe r Pri ces
$/tonne (t)
10,000

Copper

Aluminium

9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015F

China is expected to remain the primary driver of aluminium consumption over the long-term.
Although, aluminium consumption in China is growing faster than GDP, consumption on a per
capita basis remains very low as compared with developed countries.

Indias Aluminium Consumption

Indias aluminium consumption increased 13.6% in 2009 to around 1.46 mt, driven by a double
digit growth in aluminium forms of castings, extrusions and wire rods, consumed mainly in
transportation, building and electrical segments respectively. Consumption growth was also
supported by strong increase in automotive production growth from 2.7% in 2008 to 15.1% in
2009. India's consumption increased 1.2% in 2010 to 1.52 mt, primarily because of the base effect,
but also because of deceleration in manufacturing production from the second half of 2010.
Consumption increased 6.4% in 2011 primarily because of the base effect and stronger growth
during the first half of 2011. Consumption increased 7.7% in 2012 to 1.69 mt mainly because of
demand growth in the electrical and construction sector. Consumption declined 9% in 2013 and
6% in 2014 because of lower domestic production, and weakness in electrical and construction
sector investments. Growth could be constrained till early-2015 because of weak economic activity,
restrained investment, and decline in demand for automobiles.

www.imacs.in

30

Industry Comment

Aluminium

In di as Al u mi ni u m Co ns um p ti o n an d G ro wt h
Thousand tonnes
Consumption

35%

Growth

2,000
1,800

25%

1,690
1,569

1,600

1,458 1,475

1,400
1,207

1,200

1,534

1,284

1,571

10%
5%

958
798

800
570

602

589

20%
15%

1,442

1,079

1,000

600

30%

5-year CAGR (2010-14)

861

0%
-5%

604

-10%

400

-15%
1999

2001

2003

2005

2007

2009

2011

2013

2015F

Data for Indias apparent aluminium consumption is somewhat unreliable as data is limited. As a
result, apparent consumption, rather than actual consumption, is commonly used as an
approximation. Apparent consumption is defined as domestic production plus net imports minus
reported stock changes. It therefore represents the volume available for consumption adjusted for
reported stock changes. Although apparent consumption is a good approximation of actual
consumption, it is subject to many measurement errors. For example, unreported changes in
stocks, either at the retail or wholesale level, can result in large differences between apparent
consumption and actual consumption.
During the last few years, the domestic aluminium market witnessed a growth in demand
particularly from power, automotive, and housing sectors. The demand figures include only
primary aluminium and do not include recycled aluminium demand or secondary aluminium
demand, which is around 0.7 mtpa. India lags behind developed countries where usage of recycled
aluminium is nearly 10 times that of primary aluminium because of energy savings.
The electrical sector has been the largest consumer of aluminium, accounting for 39% of the
aluminium consumption. The demand from the sector has been growing at a healthy 6-7% per
th
annum. To fulfil the estimated electricity demand requirement, the 11 Plan had estimated
required capacity addition of 78,577 MW at an estimated investment requirement of Rs. 6,665
th
th
billion. However, the Mid-Term Appraisal of the 11 Plan (MTA, 11 Plan) had revised the target
for total capacity addition downwards to 62,374 MW, which is nevertheless about three times the
th
th
capacity actually added in 10 Plan. Based on the expected capacity expansions during the 11
Plan and associated investments in transmission and distribution. Studies carried out by the Central
th
Electricity Authority (CEA) indicate required capacity addition of around 72,000 MW during the 11
th
Plan and 86,500 MW during the 12 Plan comprising of 30,000 MW of hydro, 44,500 MW of
www.imacs.in

31

Industry Comment

Aluminium

thermal and 12,000 MW of nuclear capacity. As a result, aluminium requirement for power
generating stations and components of power system has been estimated at around 15.8 mt
th
during the 12 Plan.
The automotive/transport sector is the second largest user of aluminium in India. Consumption
from the automotive segment had grown at a healthy rate till 2007-08 driven by the demand in the
automotive sector and a significant increase in the intensity of aluminium consumption. However,
following a period of high growth, Indias automotive production witnessed stagnation and decline
in FY2008-09, subsequently increasing at high rates of 25.8% in FY2010, and 27.3% in FY2011.
However, production increased at substantially lower rates of 14% during FY2012. Growth rates
continued to decline in FY2013-14 with production increasing only 4% in FY2014. Production
however increased 11.1% during 9MFY2015 with high growth in commercial vehicles and two
wheelers. India is emerging as a global hub for automotive as well as auto components production,
which is likely to fuel demand further. The building and construction sector is also poised to grow
further. The current housing shortage is estimated to be around 25 million units in urban areas and
15 million units in rural areas.
Although Indias annual per capita aluminium consumption has increased from 0.6 kg in 1996 to
1.1 kg in 2014, Chinas annual per capita consumption has increased from 0.81 kg in 1991 to 17.3
kg in 2014. However, Indias per capita consumption is unlikely to increase at the same rate as
China. Chinas per capita consumption at a given income level is higher than in the other emerging
markets, mainly because it has a higher share of industry in GDP. By comparison, Indias industrial
sector has a much lower share in GDP. Over the last three decades, manufacturing has been
consistently the principal source of growth in China, followed by services, with agriculture falling
behind as its growth slowed and its share diminished. The high share of manufacturing is because
of increased manufacturing exports, and the Government has stimulated the development of
manufacturing activities with export potential. By comparison, in India, the share of industry in total
GDP increased till the late-1990s, but has thereafter declined to 17-18% in recent years. In recent
years India has made large investments in infrastructure on roads, as indicated by the large
increase in construction activity. However, the infrastructure gap remains large. Unlike in the case
of China, Indias services sector has performed better than industry. Indias presence in the global
manufactured exports market is limited mainly to low-tech (textiles, garments, and footwear) and
resource-based products. As a share of world production, Indias manufacturing activities are of
significance in subsectors such as food products, textiles and apparel, leather products and
footwear, (petro) chemicals, and, more recently, iron and steel.

www.imacs.in

32

Industry Comment

Aluminium

Per Ca pi ta Al u mi ni u m C ons u m p ti o n i n I n di a an d Ch i na
Kg per annum
20

India

China

18
16
14
12
10
8
6
4
2
0
1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

The per capita consumption of aluminium in India is currently at 1.1 kg per annum, which
compares poorly with China, and most developing countries. The current low consumption of
aluminium in the country, besides the fact that India has the fifth largest bauxite reserves in the
world, points to large growth potential for the sector.
Per Ca pi ta Al u mi ni u m C ons u m p t i o n
Kg per annum
30

2002
2014

25

20

15

10

0
China

US

Germany

Japan

Korea

India

Russia

Brazil

World

D O ME S T IC S U P P LY C H A R A C T E R I S T IC S
The domestic aluminium industry can be divided into primary producers and secondary fabrication
units. The figure below presents the structure of the Indian aluminium industry.
www.imacs.in

33

Industry Comment

Aluminium

S tr uc t ur e o f I nd i a n A l umi ni u m In d us tr y

Primary Producers
Given that production of primary aluminium (the metal) is a more capital-intensive activity than
fabrication, there are just four primary producers in India, as against several small downstream
manufacturers. These players are:
1. Hindalco Industries Ltd. (Hindalco)
2. National Aluminium Company Ltd. (Nalco)
3. Sesa Sterlite Limited (SSL)through its 51% acquisition of Bharat Aluminium Company Ltd.
(Balco), and holding in Vedanta Aluminium Ltd. (VAL)
SSL is part of Vedanta Resources (VR) which has principal operations located in India, through its
holdings in various companies. SSL is majority-owned and controlled subsidiary of Vedanta. Volcan
Investments Limited, or Volcan holds 62.3% of the share capital and 69.6% of the voting rights of
Vedanta as of July 31, 2014. Volcan is a holding company, 100% owned and controlled by the
Trust. Conclave is the trustee of the Trust and controls all voting and investment decisions of the
Anil Agarwal Discretionary Trust (Trust). As a result, shares beneficially owned by Volcan may be
deemed to be beneficially owned by the Trust and, in turn, by Conclave PTC Limited (Conclave).
The beneficiaries of the Trust are members of the Agarwal family, who are related to Mr. Anil
Agarwal. Mr. Anil Agarwal, the Executive Chairman of Vedanta and Chairman Emeritus of SSL, as
www.imacs.in

34

Industry Comment

Aluminium

protector of the Trust, may be deemed to have deemed beneficial ownership of shares that are
beneficially owned by the Trust.
SIL holds 51% of Balcos share capital and has management control of the company. The GoI owns
the remaining 49%. SIL exercised an option to acquire the Gos remaining ownership interest in
BALCO on March 19, 2004, which has been contested by the GoI. Twin Star also holds a 78.8%
stake in Malco. In addition, another group companySterlite Infraventures Ltdholds a 16% stake
in Malco. Vedanta Aluminium (VAL) is 70.5% owned by Vedanta through Twin Star and Welter
Trading, following a Rs. 4,421 million investment in March 2005. The balance 29.5% is held by SIL.
On February 25, 2012, SSL, Sesa Goa and Vedanta announced an all-share merger of SSL and Sesa
Goa to create Sesa Sterlite and to effect the consolidation and simplification of Vedanta's
corporate structure through the Reorganisation Transactions consisting of the Amalgamation and
Reorganisation Scheme and the Cairn India Consolidation. The Amalgamation and Reorganisation
Scheme was On August 17, 2013, Sesa Goa Limited (SGL) and SSL announced that merger of
Sterlite and The Madras Aluminium Company Limited (Malco) with Sesa Goa and transfer of
MALCO power plant to Vedanta Aluminium Limited (VAL) pursuant to the Scheme of
amalgamation and arrangement amongst Sterlite, Malco, Sterlite Energy Limited (SEL), VAL and
Sesa Goa and their respective Shareholders and Creditors had become effective. The name of Sesa
Goa Ltd has been changed to Sesa Sterlite Ltd (SSL) from September 18, 2013
Vedantas aluminium business is owned and operated by SSL and by Balco in which it has a 51%
interest as at March 31, 2014. Till recently, Malco was primarily an integrated aluminium
manufacturing company with a captive power plant. Malcos primary aluminium production
peaked at 37 kt in FY2006 (3.7% of domestic aluminium production) but subsequently declined to
23 kt by FY2009 (or 1.7% of domestic production). As world and domestic aluminium prices
declined in 2008-09, Malco found it unviable to produce (based on its older Soderbergtechnology). A switch in technology to pre-baked (PFPB) electrodes would have entailed a
significant investment. Besides, the non-renewal of leases to use bauxite mines made it
uneconomical for Malco to source raw material from distant locations in a cost-effective manner.
As a result, Malco shut down aluminium production from late-2008 and has altered its business
model from aluminium production to power generation. Subsequently, on February 25, 2012,
Sterlite, Sesa Goa and Vedanta announced an all-share merger of Vedantas majority-owned
subsidiaries Sesa Goa and Sterlite to create Sesa Sterlite and a consolidation of various subsidiaries
held within Vedanta.
Despite being secondary products, rolled products are largely manufactured in the primary sector
on account of the high capital costs involved in setting up cold /hot rolling mills.
The five primary producers presently have an installed capacity of 1.8 mtpa of primary aluminium.
The trends in production of the five players is as follows:

www.imacs.in

35

Industry Comment

Aluminium

Tre n ds i n I ns t a l l e d C a pa ci t y a n d Al u mi ni u m Pro d uc ti o n of Pri m ary Pro d u cers

Thousand tonnes
FY

2008

2009

2010

2011

2012

2013

2014

Capacity

1,204

1,529

1,468

1,468

1,697

1,689

1,765

345
471
350
38

435
500
245
38
250
1,525

435
500
245
38
250
1,619

438
514
245
0
500
1,668

430
514
245
0
500
1,719

460
560
245

1,238

403
488
350
38
250
1,349

500
1,516

360
478
362
38
0

361
524
357
23
83

431
556
263
0
274

444
538
253
0
384

413
575
0

403
542
248

316
404
254

433

526

542

Nalco
Hindalco
Balco
Malco
VAL
Production
Nalco
Hindalco
Balco
Malco
VAL

Balco, Malco, and VAL are part of SSL/Vedanta.

The domestic primary aluminium industry is characterised by a high degree of concentration

because of the following reasons:
high capital costs because of large plant sizes (150-200 kt per annum or ktpa smelters) and
high capital intensity;
restricted access to technology; tie-ups have to be entered into with global technology
suppliers.
entry into the aluminium industry restricted by licensing controls till 1989.
Restrictive access to bauxite resources.

Secondary Producers
The secondary rollers and extruders in the Indian aluminium industry either purchase the primary
metal (billets and blooms) from domestic producers or import the same and process the metal at
their own fabrication plants into semi- or fully -fabricated products. The secondary metal
(aluminium) industry in India is characterised by:
low entry barriers because of low capital costs and low dependence on technology. The
low entry barriers, in turn, imply intense competition and low capacity utilisation.
high input cost: Most of the domestic production of primary aluminium is either captively
consumed or exported by the primary producers. The secondary players, therefore, rely
heavily on imported aluminium, which is costlier than domestic supplies because of the
import duties. In fact, the high landed costs of primary aluminium exert great pressure on
the margins of secondary producers (primary producers, on the other hand, have started
integrating downwards to take advantage of the low cost of aluminium that they produce
in house).
Since primary players produce aluminium at much lower costs vis--vis the landed cost of
imported aluminium that is used by most secondary players, the margins of primary producers
increase if they undertake higher-value added secondary processing themselves. The primary
industry have thus started integrating downwards, with the share of secondary products in total
www.imacs.in

36

Industry Comment

Aluminium

sales increasing over the years. As the primary producers account for bulk of the products in the
domestic secondary market, this market is dominated by primary producers themselves.
Hindalco had an alloy wheel plant at Silvassa (Gujarat) manufacturing automotive alloy wheels with
an installed capacity of 300,000 units per annum (upa). Production peaked at 196,621 units during
FY2007 (with sales of Rs. 403 million) but thereafter declined primarily because of a slowdown in
domestic automotive sales, lower demand from automotive manufacturers, and higher
competition from imports. As a result, operations at the plant were discontinued from mid-2009.

Aluminium Recycling
Aluminium can be produced either from bauxite (primary production) or from aluminium scrap.
Anything made from aluminium can be recycled to produce the metal again. `Secondary
aluminium is produced from recycled scrap that is either generated at the smelter and fabrication
plants or collected post consumption. Thus, the aluminium scrap is categorised as new and old,
due the distinction of pre or post consumption. Usually there is no need for sorting of the new
scrap and it can be used on-site at the smelter or transported directly to a secondary refiner or
remelter. Pretreatment is only needed when the new scrap includes alloys. Old scrap is waste
material that has high aluminium content, such as electronic appliances, automobile parts,
construction material, packaging material, etc. Primary smelting is the most energy intensive
activity in the aluminium sector. The energy usage for refining is between 225-260 KWh/t,
compared to between 14,000-16,000 KWh/t of product for primary smelting. Recycling aluminium
scrap is significantly less energy intensive, while secondary re-smelting requires between 120-340
KWh/t product and only 5% of energy used in primary smelting. Thus, aluminium scrap or
`Secondary Aluminium is an important source of supply for aluminium alloys. Secondary
aluminium production accounted for 16% of total aluminium production in 2013.
Recycling was a low-profile activity until the late 1960s when recycling of aluminium beverage cans
finally vaulted recycling into the public consciousness. Other sources for recycled aluminium
include automobiles, windows and doors, appliances, and other products. Recycling of aluminium
is economically viable, because of the high value of raw materials and the relatively low costs of
processing. The melt temperatures for aluminium are around 1,500 Fahrenheit (F), as compared
with 210 F for plastics, 2,800 F for glass, and 3,000 F for steel. In Europe aluminium has high
recycling rates, ranging from 41% in beverage cans to 85% in building and construction and 95% in
transportation. In Japan the recycling rate for cans was 79%. Recycling in Japan has been growing,
with the fastest growth over the last decade. In the US, beverage can recycling rate is around 55%.

www.imacs.in

37

Industry Comment

Aluminium

Wo rl d S eco n da ry Al u mi ni u m Pr od u cti on
Thousand tonnes
Production-LS

10,000

30%

Share of Total-RS

9,500
9,000

25%

8,500
8,000

20%

7,500
7,000

15%

6,500
6,000

10%

5,500
5,000

5%
1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Capacity Expansions
Indias primary aluminium production capacity as at end-March 2014 stood at around 1.8 mtpa,
which represents an increase from 1.2 mtpa at end-March 2008. The increase in both domestic and
international demand has encouraged producers to raise their capacities. Over the next five years
till 2016-17, various projects are expected to result in expansion of alumina capacity by 8.68 mtpa
to 13.3 mtpa. Primary aluminium production capacity is also forecast to increase by 3 mtpa to 4.7
mtpa by 2016-17. To support the forecast aluminium capacity, requirement of alumina is estimated
at 9.2 mtpa. In addition, the bauxite requirement to support forecast alumina capacity of 13.3 mtpa
will be around 40 mtpa. Considering domestic smelting capacity of 9.2 mtpa, around 4 mtpa of
alumina will have to exported.

Hin da lco
Hindalcos Renukoot plant in Uttar Pradesh (UP) was commissioned in 1962 with one
potline and a smelter of 20 ktpa. Over the years the plant has increased its capacity, and at
present the integrated facility comprises a 700 ktpa alumina refinery and a 345 ktpa
aluminium smelter along with facilities for production of semi-fabricated products namely
conductor redraw rods, sheet and extrusions. In 1967 Hindalco established a captive power
plant at Renusagar, the first captive power plant (CPP) for aluminium industry in India. This
along with a co-generation power unit ensures continuous supply of power for the smelter
and other operations.
In 1959, Indal (now acquired by Hindalco) had commissioned the Hirakud smelter and
power complex in Odisha. Primary aluminium production capacity at this smelter has been
expanded from 10 ktpa to 213 ktpa. Work on the smelter expansion from 155 ktpa to 161
ktpa was completed in Q4FY2011. Smelter expansion from 161 ktpa to 213 ktpa along with
100 MW power plant expansion (from 367 MW to 467 MW) has also been commissioned.
www.imacs.in

38

Industry Comment

Aluminium

The next phase is expected to result in further expansion to 360 ktpa along with an
increase in back-up captive power from the initial proposed 467.5 MW to 967.5 MW.
In 1948, Indal/Hindalco had commissioned Indias first alumina refinery at Muri, Jharkhand.
Hindalco has implemented a brownfield expansion of alumina refinery capacity at Muri,
Jharkhand from 110 ktpa to 450 ktpa. Production was ramped up in a phased manner. The
entire steam and power requirement is being met by the new captive power plant (CPP).
The project includes the construction of a new co-generation power plant and railway
system to transport raw materials and finished products.
Hindalco has an alumina refinery at Belgaum, Karnataka. The alumina plant started
operations in 1969 with an initial capacity of 75 ktpa of alumina hydrate and currently
produces around 350 ktpa.
Hindalco is setting up an integrated greenfield aluminium project in Odisha under a
separate companyAditya Aluminium. The project is estimated to cost Rs. 132 billion. It
comprises a 1,500 ktpa alumina refinery which will be supplied with bauxite by a 4,200 ktpa
bauxite mine located at Kodingamali, which is three kilometres from the refinery. In
addition, the project includes construction of a 360 ktpa aluminium smelter and a 900 MW
CPP in Lapanga. The project commenced operations in 2014. The first metal from the 360
ktpa smelter has already been tapped, and project ramp up has commenced.
Hindalco is implementing the Mahan Aluminium project, which involves building an
aluminium smelter of 359 ktpa capacity alongwith a 900 MW CPP near Bargawan, Sidhi
District of MP. The first metal from the project was tapped in April 2013, and the smelter
produced around 59 kt of aluminium metal in FY2014. For this project, it had erstwhile
allocation to the Mahan coal block through a joint venture (JV) with Essar Power. Hindalco
held a share of about 3.6 mtpa in the coal block. The coal block allocation has now been
cancelled.
Hindalco had also promoted a 55:45 joint venture with AlcanUtkal Aluminafor setting
up of alumina capacity of 1,500 ktpa at Rayagada, Odisha. It has subsequently acquired the
45% stake of Alcan. The alumina refinery will eventually have a capacity of 2,000 ktpa
within three years of the refinery commencing operations. The refinery will be supplied by
a 4,200 ktpa bauxite mine located nearby. The project is expected to cost Rs. 56 billion. The
company expects output from this alumina refinery to be sufficient to feed alumina to the
Mahan and Aditya smelters. The project is now operational and is in the process of
ramping up. Utkal produced around 277 kt of alumina in FY2014.
Hindalco also intends to build an aluminium smelter at Sonahatu, Jharkhand which is 20
kilometres from its 450 ktpa alumina refinery at Muri. This project will have a capacity of
359 ktpa along with a 900 MW CPP. The land acquisition process has already started. The
Government of Jharkhand has given the water allocation clearance for 55 million cubic
metres (mcm) of water from the Subarnarekha basin. The project was supposed to procure
coal from Tubed coal mine which had been allotted jointly with Tata Power (Hindalco 60%,
Tata Power 40%). Allocation for this coal block has now been cancelled.

Na lco
Nalco has implemented an expansion project at an estimated cost of Rs. 41 billion. The
expansion project raised present installed capacity of bauxite mines (Koraput, Odisha) from
4,800 ktpa to 6,825 ktpa; alumina production capacity (Koraputi, Odisha) from 1,575 ktpa
www.imacs.in

39

Industry Comment

Aluminium

to 2,275 ktpa; aluminium production capacity (Angul, Odisha) from 345 ktpa to 460 ktpa;
and power generation capacity (Angul, Odisha) from 960 MW to 1,200 MW.
Nalco now plans to expand its alumina capacity at Koraput by 1 mtpa at a cost of Rs. 45.7
billion which is likely to be completed by 2016. The detailed project report (DPR) is under
evaluation. The project is largely linked to the allotment of Pottangi Bauxite deposits in
favour of Nalco. Pottangi bauxite deposit is reserved by Government of India, in favour of
the company. The matter is being pursued with Government of Odisha to recommend the
allotment in favour of the company.
In its efforts for capacity addition and expansion, NALCO has extensive plans for brown
field and green field expansion projects. These include a greenfield 1 mtpa alumina
Refinery in Gujarat in joint venture (JV) with Gujarat Mineral Development Corporation
(GMDC); 5th Stream of 1 mtpa in existing alumina Refinery at Koraput; a new 0.5 mtpa
aluminium smelter and 1,260 MW Power Complex in Odisha; 0.5 mtpa aluminium Smelter
abroad; and development of bauxite mines at Gudem and KR Konda in Andhra Pradesh
and Pottangi in Odisha etc. Nalco has also announced a long-term plan to 2020, whereby
it plans to invest Rs. 579 billion.
Nalco greenfield 0.5 mtpa aluminium smelter and a 1,260 MW Thermal Power plant is
proposed at Sundargarh district of Odisha at an investment of Rs. 190 billion. The
smelter will be set up in two phase of 250 ktpa each. Alumina will be sourced from
Nalcos alumina refinery plant in Damanjodi, Odisha at a distance of around 500 km by
rail. The proposal has been cleared by high powered clearance committee of
Government of Odisha. Since the viability of the project hinges on allocation of a
Captive coal block, the company is pursuing with Ministry of coal through Ministry of
Mines for allocation of a coal block through the Government dispensation route.
Nalco has plans to establish a 1 mtpa alumina Refinery in Kutch district of Gujarat in
joint venture with GMDC at an estimated cost of Rs. 60 billion. The DPR for the project
has been prepared.
Nalco also plans to set up a mines and refinery complex in Visakhapatnam district of
Andhra Pradesh (AP) involving an investment of Rs. 56 billion. The proposed complex
will have a 4.2 mtpa bauxite mine and a 1.4 mtpa alumina refinery. The refinery would
be based on the bauxite reserve of Gudem and KR Konda blocks in AP. However, Nalco
is proceeding cautiously on field activities for the proposed mines and refinery project,
primarily because of unfavourable ground conditions in the area.

S S L/ Veda n ta Resou r ces

Balco: Balcos aluminium operations comprise of two bauxite mines, two CPPs of 810 MW
(540 MW CPP is used to produce power for captive consumption and the other of 270 MW
is used for commercial purpose), an alumina refinery of 200 ktpa (operations of which have
been suspended since September 2009), a 245 ktpa aluminium smelter and a fabrication
facility, all of which are located in Korba, Chattisgarh. In November 2006, Balco had
commissioned capacity expansion for aluminium production from 100 ktpa to 345 ktpa at
its Korba smelter. The new project with capacity of 245 ktpa uses pre-baked technology
from the Guiyang AluminiumMagnesium Design & Research Institute (GAMI) of China.
www.imacs.in

40

Industry Comment

Aluminium

During FY2009 and until June 5, 2009, Balco also operated the earlier 100 ktpa aluminium
smelter at Korba. The project also included a 540 MW coal-fired CPP to cater to the
enhanced smelting requirement. In response to global economic conditions and a decline
in commodity prices, starting in February 2009, Balco suspended part of its operations at
the 100 ktpa aluminium smelter at Korba. Operations at this aluminium smelter ceased on
June 5, 2009. The surplus power generated by the captive power plants at the Korba facility
is now being sold to the Chattisgarh State Electricity Board (CSEB) and other third parties.
Balco entered into a memorandum of understanding (MoU) with the State Government of
Chhattisgarh on August 8, 2007, for a potential investment to build an aluminium smelter
with a capacity of 650 ktpa at Korba, Chhattisgarh, at an estimated cost of Rs. 85 billion.
The aluminium capacity expansion will be implemented in two phases of 325 ktpa each.
Balco has commenced the implementation process of the first phase of expansion for
setting up a 325 ktpa aluminium smelter at an estimated cost of Rs. 38 billion, which uses
pre-baked technology from the GAMI of China. The associated thermal CPP will comprise
1,200 MW (four units of 300 MW each). Of the 1,200 MW facility being set up, power
generated from two 300 MW units will be utilised in the 325 ktpa smelter, and power from
the balance 600 MW units will be sold to third parties. The CPP is awaiting final stage
regulatory approvals. The project achieved first metal tapping in late-FY2014. Around 84
pots have been commissioned, and further pots will be started after commissioning of
1,200 MW power plant. Balco also received a coal block allocation of 211 mt for use in its
captive power plants in November 2007. These allocated coal blocks are regarded as nonreserve coal deposits and have been cancelled recently.
SSL: SSLs aluminium business was earlier operated by Vedanta Aluminium Limited (VAL),
which was merged with SSL. VAL/SSL has an integrated facility at Lanjigarh, Odisha which
includes a 1 mtpa alumina refinery and an associated 75 MW captive power plant. In
addition, SSL has a greenfield 500 ktpa aluminium smelter at Jharsuguda, Odisha together
with an associated 1,215 MW (nine units with a capacity of 135 MW each) coal-based CPP.
Lanjigarh: SSL/VAL started with a 1 mtpa alumina capacity at Lanjigarh, expandable to 1.4
mtpa subject to government approvals, with an associated 75 MW CPP (expandable to 90
MW). In March 2007, VAL began progressive commissioning of this new alumina refinery.
One of the two units of the associated CPP was commissioned in February 2007. The
Lanjigarh alumina refinery produced 267 kt of alumina in FY2008, feeding VRs captive
requirements. The refinery produced 586 kt of alumina in FY2009. As scheduled, the
second stream of the 1.4 mtpa Lanjigarh alumina refinery was commissioned in March
2010.
Jharsuguda; SSL/VAL Jharsuguda aluminium smelter of 500 ktpa is located in Jharsuguda,
Odisha. Operations in the Jharsuguda facility were implemented in two phases of 250 ktpa
each. The first phase (Plant I) has a production capacity of 250 ktpa and was completed in
November 2009. The second phase (Plant II) of 250 ktpa was commissioned in June 2010.
A total of 9 units of the associated 1,215 MW coal-based thermal CPP of 135 MW each
have been commissioned. The Jharusguda smelter produced 542 kt of aluminium in
www.imacs.in

41

Industry Comment

Aluminium

FY2014. SSL is also setting up a 1.25 mtpa aluminium smelter (Plant III) at Jharsuguda.
Power to the new smelter will be provided by a 2,400 MW power plant in Jharsuguda. 50
pots from the first line of this smelter will be commissioned during FY2015. This project is
expected to cost Rs. 145 billion ($2.4 billion). As of March 31, 2014, SSL had spent Rs.
119.51 billion on this project.
Lanjigarh (on hold): VAL had planned to invest Rs. 106 billion to expand its alumina
refining capacity at Lanjigarh to 5 mtpa by increasing the current alumina refinerys
capacity from 1.4 mtpa to 2 mtpa by de-bottlenecking; constructing a second alumina
refinery with a capacity of 3 mtpa; and constructing an associated 210 MW captive power
plant. However, the expansion of the alumina refinery at Lanjigarh and related mining
operations in Niyamgiri Hills have been on hold since October 20, 2010. Production of
alumina at the refinery at Lanjigarh was temporarily suspended since December 5, 2012,
due to inadequate availability of bauxite and the plant recommenced operations on July
12, 2013. SSL is currently in discussions with government authorities for sourcing adequate
supply of bauxite.
On October 5, 2009, VAL also entered into an agreement with Odisha Mining Corporation
(OMC) for the supply of 150 mt of bauxite to alumina refinery at Lanjigarh from the
Lanjigarh bauxite mine and nearby mines. In November 2007, the Supreme Court of India
(SCI) directed SIL to enter into an agreement with OMC to operate the bauxite mines in
place of VAL. Accordingly OMC and SIL have an agreement to form a joint venture (JV)
company to bauxite from the mines in the name of South West Orissa Bauxite Mining Pvt.
Ltd with 74% and 26% shareholding rights of SIL and OMC, respectively. Besides formation
of JV company for mining for bauxite, OMC and SIIL jointly agreed to the rehabilitation
package as suggested by the SCI when it granted clearance to the mines project.
Accordingly, SIL filed necessary affidavits accepting the rehabilitation package in
compliance with the interim judgment dated November 23, 2007. In accordance with the
court order, the Government of Odisha has formed a special purpose vehicle on October 6,
2009 in the name of Lanjigarh Project Area Development Foundation (LPADF), for the
purposes of the Lanjigarh area development. Mine development has not commenced so
far.
Regarding this project, on August 8, 2008, the SCI granted SIL clearance for forest
diversion proposal for the conversion of 660.75 hectares of forest land from forestry use to
mining use, allowing it to source bauxite which has been mined on the Niyamgiri Hills in
Lanjigarh. Pursuant to the SCI order, Sterlite was required to pay the higher of 5% of
annual profits before tax and interest from the Lanjigarh project and Rs. 100 million per
annum (commencing April 2007), as a contribution for scheduled area development, as
well as Rs. 122 million towards tribal development and Rs. 1,055 million plus expenses
towards a wildlife management plan for conservation and the management of wildlife
around the Lanjigarh bauxite mine. On December 11, 2008, the MoEF granted in-principal
approval under the Forest (Conservation) Act, 1980. On April 28, 2009, the MoEF also
granted environmental clearance for the mining of bauxite. Thereafter, MoEF in a
statement issued on August 24, 2010 refused final approval to the OMC proposal for
www.imacs.in

42

Industry Comment

Aluminium

bauxite mining at Niyamgiri hills, in the State of Odisha, following the report of Dr. N.C.
Saxena committee and recommendation of the Forest Advisory Committee, MoEF. Against
this order of the MoEF, OMC filed a writ petition in the Supreme Court (SC) on October 24,
2010. The SC issued a notice on the writ by its order dated April 21, 2011 and directed the
MoEF to file its reply within four weeks. In the meantime, the MoEF by its order dated July
11, 2011, cancelled the environmental clearance granted to OMC for its Niyamgiri mines.
OMC then filed an application in the SC against this order of the MoEF on August 1, 2011.
The MoEF directed VAL to maintain status quo on the expansion of its refinery on October
20, 2010. Thus, the project was put on hold. Against this order, VAL filed a writ petition in
the High Court of Odisha and the court dismissed the writ. VAL then made an application
to the MoEF to reconsider the grant of the environmental clearance for its alumina
refinery. The MoEF by its letter dated February 2, 2012, issued fresh terms of reference to
VAL for preparation of the EIA report which is required to be submitted to the Orissa
Pollution Control Board (OPCB) for public hearing and after incorporation of the response,
submit the final EIA report to the MoEF for environment clearance. SSL submitted the
Environment Impact Assessment report to the OPCB and parallely submitted various
representations to the MoEF as well as the Project Monitoring Group established under the
Cabinet Committee on Investments. The Expert Appraisal Committee of the MoEF
reconsidered the project and revalidated the terms of reference for 22 months effective
January 2014. Therefore the ban imposed on the expansion of SSLs alumina refinery was
lifted and it is now pursuing the matter with the state government.
On April 18, 2013, the SCI directed the state government of Odisha to place unresolved
issues and claims of the local communities that had served as the basis for MoEFs order
before the Gram Sabha, a decision-making body of the affected local communities. The
Government of Odisha completed the process of conducting Gram Sabha meetings and
submitted its report on the proceedings to the MoEF. Further the MoEF, based on the
report submitted by the Government of Odisha rejected the grant of stage II forest
clearance for the Niyamgiri project of OMC on January 8, 2014, which is one of the sources
of supply of bauxite to the Alumina refinery at Lanjigarh in terms of the memorandum of
understanding with the government of Odisha (through Orissa Mining Corporation), 150
mt of bauxite is required to be made available to SSL. SSL is now considering to source
bauxite from alternate sources to support the existing and the expanded refinery
operations.

PRICES AND DUTIES

Price Trends and Prospects
India accounts for around 3-4% of the global production for aluminium. So, it hardly influences
aluminium prices on the London Metal Exchange (LME). However, prices on the LME do have an
effect on domestic prices, since, on the one hand, they determine the margins of Indian exporters
and, on the other, influence the landed price of imported metal.
www.imacs.in

43

Industry Comment

Aluminium

Over the last 20 years (1995 to 2014), annual average world aluminium prices have averaged
$1,839/t with a high of $2,638/t in 2007 and a low of $1,139/t in 1993. Prices averaged $1,435/t
during 1991-2000. Average prices increased to $2,138/t during 2003-08 primarily because of
strong demand and an increase in energy costs. On a five year basis, average prices were $2,269/t
during 2005-09 and $2,062/t during 2010-14.
Russia is one of the major producers of aluminium accounting for 8-10% of global production.
Before the breakup of the former Soviet Union (FSU), most of the aluminium produced in Russia
was consumed internally. With the collapse of the FSU, the Russian economy contracted drastically
and the country needed to raise currency. This resulted in major reductions in aluminium
consumption in Russia, and the country started exporting most of its production. This created an
oversupply in the world market, reducing prices sharply in the mid-1990s. Although Russia still
exports a substantial part of its production, the share declined from 85% in 1996 to 72% in 2005,
subsequently increasing substantially to 141% in 2013.
Lo n g T er m T re n ds i n Wo rl d Al u mi ni u m Pri ces
$/t
3,000

80%

Price-US$/t (LS)
Growth (RS)

60%

2,500
40%
2,000

20%
0%

1,500

-20%
1,000
-40%
500

-60%
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015F

Between 1948 and 2010, data on monthly aluminium prices indicate that contractions have had
longer durations (average of 36.5 months with a range of 15-83 months) than expansions (average
of 24.8 months with a range of 6-52 months). The largest contraction was from the peak of early
1966 to the trough of end-1972. By comparison, the largest expansion was from the trough of
August 2002 to the peak of mid-2008.
Aluminium prices were in a narrow range of $1,300-1,600/t during 1996-2003. However, world
aluminium prices witnessed a sharp increase from late-2002 to 3Q2008 following a surge in global
aluminium demand mainly in China, and a decline in stocks. Aluminium prices on LME increased
from $1,431/t during 2003 to record annual average of $2,638/t in 2007. During 2008, aluminium
www.imacs.in

44

Industry Comment

Aluminium

prices increased sharply to $3,071/t in July 2008, before declining to $2,764/t in August 2008
primarily because of the build-up in inventories, and tightening credit markets. Much of the price
increase was attributable to reduced global production owing to electricity shortages in South
Africa, and severe weather in China that forced many producers to decrease production. Prices also
increased because of increased cost of electricity, which accounts for 30-40% of total input costs.
As energy (and production) costs rise, marginal aluminium producers reduced output, resulting in
lower supplies of aluminium, placing upward pressure on aluminium prices. Prices in mid-2008
were around 30-40% higher than the typical cost of the least efficient producer, and around 60%
higher the cost of a typical producer. However, between August-December 2008, prices declined
52% (or by $1,581/t) to $1,490/t in December 2008. While annual average prices declined 2.5% in
2008 to $2,573/t, quarterly average prices declined 38% from $2,940/t in 2Q2008 to $1,821/t in
4Q2008. Since September 2008, marginal producers cut production as a result of rising input costs
combined with sharp fall in aluminium prices. Because consumption slowed rapidly from
September 2008, production cuts were not been sufficient to support prices.
A nn ua l T r e nds i n In t e rna ti o nal a n d Do mes t i c Al u mi ni um P ri ces
per tonne
2,800

International-LS

2,600

Domestic-RS

170,000

150,000

2,400
2,200

130,000

2,000

110,000

1,800
1,600

90,000

1,400

70,000

1,200
1,000

50,000
1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

After a sharp fall till March 2009, aluminium prices increased 63% (or by $844/t) during AprilDecember 2009. Aluminium prices recovered on Chinese demand, signs of economic recovery
becoming more pronounced, and consumers anticipating rapid future increases in demand.
Aluminium prices were also partially supported by the Chinese Governments $586 billion stimulus
package and strategic stock building in that country. Stock building, combined with domestic
production cuts, resulted in China becoming a net importer of aluminium in 2009. Despite this
recent increase, average prices declined 35.3% in 2009 to $1,665/t.
During 2010, aluminium prices continued to increase and reached their 19-month highs of $2,317/t
in April 2010, but subsequently declined 9% during May-August 2010 to average $2,118/t in
www.imacs.in

45

Industry Comment

Aluminium

August 2010. In line with other base metal prices, the decline in world aluminium prices mainly
reflected uncertainty surrounding the outlook for world economic growth as a result of two recent
developmentsthe intention of the Chinese Government to slow its rapid economic growth to a
more sustainable pace and the European debt crisis. In addition, relatively high stocks also placed
downward pressure on aluminium prices. Following a decline till June 2010, aluminium prices
rallied significantly, increasing 18% during August-December 2010. Although aluminium prices
shed some of their gains of 2008, prices in 2010 averaged $2,173/t, which reflects an increase of
30.5% over 2009, but a decline of 17.6% over peak average level of $2,638/t in 2007.
Mo n thl y T re n ds i n I n te rn a ti on al a n d Do m es ti c Al umi ni um P ri c es
per tonne
2,800
2,600

Avge LME-LS

180,000

Ingot Mumbai-RS

170,000
160,000

2,400

150,000

2,200

140,000

2,000

130,000
1,800

120,000

1,600

110,000

1,400

100,000
90,000

1,000

80,000
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14

1,200

During 2011, prices continued to increase till April 2011, averaging $2,501/t in 1Q2011. The price
increase was driven by a falling US dollar and growing physical and financial demand for the metal.
Prices increased because of lower metal availability, above-expectations economic growth and
increasing market confidence. In some countries, production outages affected smelters. Cold
weather in China raised power demand in the residential and commercial sectors, forcing utilities
to reduce the volume of electricity available to smelters. This caused the closure of some capacity
and delayed the start-up of new capacity. Further, many smelters in the US, Latin America, Western
Europe and the former Soviet Union remained partly closed and price levels were not considered
high enough to restart production. Following their yearly peak of $2,678/t in April 2011, prices
declined 24.5% during May-December 2011 to average $2,022/t in December 2011. Although
aluminium prices increased 9.6% during 2011 to average $2,401/t, prices declined from $2,611/t in
2Q2011 to $2,094/t in 4Q2011. Lower prices from mid-2011 reflected assumed weaker
consumption growth in the second half of 2011 in most major consuming economies. The market
was oversupplied and stocks rose steadily. There were also significant delays in accessing stocks
owing to the concentration of holdings in LME-registered warehouses in Detroit, US.

www.imacs.in

46

Industry Comment

Aluminium

During 2012, world prices declined 15.7% to average $2,023/t. Commodity prices in general
(including aluminium) rallied in early-2012 because of recovering market confidence in response to
the longer-term refinancing operations of the European Central Bank (ECB) and better-thanexpected global growth. Although aluminium prices declined 12.9% (yoy) in 1Q2012, they
increased 4% on a quarterly basis. However, with renewed setbacks to the global recovery in the
beginning of the second quarter of 2012, leading indicators pointed to a synchronised slowing in
the momentum of global activity. These factors affected commodity prices through changes in
current and prospective demand and the cost of carrying inventories. In China, growth had been
steadily moderating as the Government pursued policies aimed at slowing the economy to a more
sustainable pace. Reflecting these policies, growth in industrial production fell to single digits after
April 2012 for the first time since mid-2009. Chinas base metals consumption, which had been
steadily increasing and now accounts for more than 45% of global consumption, slowed down in
2Q2012. Aluminium prices fell below $2,000/t during June-August 2012. Prices rebounded from
September 2012 in anticipation of a pickup in economic activity beginning in the fourth quarter of
2012 and the impact of possible stimulus measures in China. Most metal prices picked up from
3Q2012, reflecting a strengthening in Chinese growth during the second half of 2012. On a
quarterly basis, aluminium prices increased 6.7% in 4Q2012, compared with declines of 10.1% in
3Q2012, and 2.1% in 2Q2012. Prices continued to be depressed by the market surplus and have
remained susceptible to fluctuations in the global economic cycle. In addition, prices also declined
because of producers in China restarting operations that were shut down in 2011 in a bid to meet
energy targets.
During 2013, world aluminium prices declined 8.7% to $1,847/t. Prices declined 0.1% (qoq) in
1Q2013, but at a higher rate of 8.2% in 2Q2013. Prices declined 2.9% (qoq) in 3Q2013 to $1,783/t,
followed by a decline of 0.9% (qoq) in 4Q2013 to $1,767/t. Prices continue to be depressed by the
market surplus and have remained susceptible to fluctuations in the global economic cycle. In
addition, prices also declined because of producers in China restarting operations that were shut
down in 2011 in a bid to meet energy targets. Excess stocks also continued to depress prices. LME
stocks exceeded 5 mt from September 2012 as demand remained weak and additional capacity
came on line in China. These stocks had been built up from 2008-09 as aluminium was stocked in
warehouses to reduce excess aluminium from the market. Financial deals continue to be a
dominant factor for LME aluminium pricing. As more than 65% of LME stocks are locked in
financial deals, ongoing low costs of finance and renewed interest from the hedge funds have
increased financial trading of aluminium contracts which is significantly exceeding physical
demand.

www.imacs.in

47

Industry Comment

Aluminium

Tre n ds i n L M E Al u mi ni um I n ve nt ory a n d P ri ces

2,800
2,600

Avge LME (US$/t)-LS

6,000

Inventories (thousand tonnes)-RS

5,500

2,400

5,000

2,200

4,500

2,000

4,000

1,800

3,500

1,600

3,000

1,400

2,500

1,000

2,000
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14

1,200

During 2014, aluminium prices continued to decline averaging $1,709/t in 1Q2014, or a (qoq)
decline of 3.3%. However, news of further production cuts and supply disruptions (because of
possibility of sanctions against Russia) caused prices to rise during 2Q2014. There was a further
boost in late-March 2014 when the implementation of new LME rules governing load-in and loadout rates was abandoned. The LME postponed plans from April 2014 to introduce a new scheme
aimed at reducing outbound delivery queues at its warehouses through the introduction of greater
controls on `load-in load-out rates. At some warehouses these queues can approach 500 days. The
immediate response was a rally in aluminium prices and premiums. The continuation of existing
LME warehouse `load-in load-out rates for the foreseeable future means that these long queues
will remain in place in 2014-15, limiting the availability of metal units to consumers. The boost to
prices remained short lived. As these factors became priced in, the continuing oversupply and high
inventories caused prices to decline 3.3% in May 2014. Aluminium prices started to increase from
June 2014, increasing 17.4% during June-November 2014 to average $2,056/t in November 2014.
On a quarterly basis, prices increased 10.5% (qoq) during 3Q2014 to $1,990/t. Prices increased as
the physical markets outside China continued to show signs of material tightness, primarily
through the escalation in premiums. This was being balanced out a little by more comfortable
supply levels relative to demand in many parts of Asia. LME stocks have declined from 5.38 mt at
end-March 2014 to 4.21 mt at end-December 2014. Cuts in smelter production have intensified
outside China, including the slowing down of smelter expansion programs. Around 1.8 mtpa of
curtailments have been announced. However, expansions in the Middle East have somewhat
countered the effects of these suspensions. Aluminium price fell 7.1% in December 2014 to
$1,909/t because of growing uncertainty about the economic outlook; and more prolonged
duration of the current backwardation in the nearby dates of the forward curve. Prices also fell
because of strong decline in oil prices. The prospect of lower energy prices in future could trigger a
ramp-up of idled capacity in China, which could result in more Chinese aluminium material on the
www.imacs.in

48

Industry Comment

Aluminium

global markets. On a quarterly basis, prices declined from $1,990/t in 3Q2014 to $1,970/t in
4Q2014. On an annual basis, world prices increased 1.1% in 2014 to $1,867/t. However, average
prices in 2014 were 29% lower than the peak levels achieved in 2007.
Domestic aluminium prices are determined on the basis on landed cost of imported aluminium
besides the cost of production of domestic producers. The high but declining import duties on
aluminium in India keep the landed costs above the international prices. Also, as the gross margin
available to domestic aluminium producers are high, the domestic prices are somewhat lower than
the landed cost of imported aluminium. With the decline in customs duties, the margin between
domestic and international prices has declined.
During FY2009, the improvement in world prices since early-2008 and the rupee depreciation
during Q1FY2009 resulted in a sharp improvement in domestic prices, from Rs. 131.3/kg in
Q4FY2008 to Rs. 144.9/kg in Q1FY2009. Subsequently, the decline in international prices resulted in
average prices declining from Rs. 141.6/kg in Q2FY2009 to Rs. 92.7/kg in Q4FY2009, and to Rs.
93.1/kg in Q1FY2010. Annual average prices declined 5.8% in FY2009 to Rs. 124/kg. During FY2010,
although prices increased to Rs. 117/kg in Q4FY2010, they were 19% lower than the peak levels
prevailing in Q1FY2009. On an annual basis, domestic aluminium prices declined 16% in FY2010 to
average Rs. 104.6/kg. During FY2011, domestic aluminium prices reached their 18-month high of
Rs. 123.94/kg in April 2010, but subsequently declined 11% to average Rs. 110.3/kg in June 2010.
Prices subsequently increased 26% during July 2010-March 2011 to average Rs. 138.6/kg in March
2011. On a (yoy) basis, prices increased 13.2% in Q4FY2011, compared with increases of 13.9% in
Q3FY2011, and 18.3% in Q2FY2011. Domestic aluminium prices increased 17.5% during FY2011 to
average Rs. 122.9/kg. However, annual average prices during FY2011 were 10% lower than the
peak annual average of Rs. 136.6/kg during FY2007.
During FY2012, domestic prices peaked in April 2011, but subsequently declined 8.3% to average
Rs. 127.2/kg in November 2011. Prices thereafter increased primarily because of the substantial
rupee depreciation from early-August 2011. On an annual basis, domestic prices increased 7.6%
during FY2012 to average Rs. 132.2/kg. During FY2013, domestic aluminium prices increased 7% to
Rs. 141.6/kg. On a (qoq) basis, prices increased 2% in 4Q2012, compared with declines of 0.9% in
3Q2012, and 2.1% in 2Q2012. Although prices increased 2% in 4Q2012, the increase was lower
than the 6.7% increase in world prices. The lower increase was primarily because of a 1.9%
appreciation in the value of the rupee vis--vis the $.

www.imacs.in

49

Industry Comment

Aluminium

Qua r te rl y T re n ds i n D omes ti c Al umi ni um P ri ces

per tonne
Rs./t (LS)

180,000

80%

Yoy Growth-Dom. Prices (RS)

Yoy Growth-LME Prices (RS)

170,000

60%

160,000
40%

150,000
140,000

20%

130,000
0%

120,000
110,000

-20%

100,000
-40%

90,000
80,000

-60%
1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

3Q14

During FY2014, domestic prices declined 3.4% in Q1FY2014. However, inspite of a 2.9% (qoq)
decline in world prices, domestic prices increased 6.8% (qoq) in Q2FY2014 because of the sharp
depreciation in the value of the rupee vis--vis the $. The rupee however stabilised from
September 2013. As a result, domestic prices increased only 0.3% (qoq) during Q3FY2014 to Rs.
148.9/kg. By comparison, world prices declined 0.9% (qoq) in Q3FY2014. Domestic prices
continued to decline in 2014, declining 0.1% (qoq) in Q4FY2014. On an annual basis, prices
increased 3.2% in FY2014 to Rs. 146/kg. Prices increased 2.5% (qoq) in Q1FY2015 to Rs. 151.7/kg in
response to a 5.3% (qoq) increase in world prices. Domestic prices increased 9% (qoq) in Q2FY2015
to Rs. 165/kg primarily because of an 11.6% (qoq) increase in world prices. During Q3FY2015,
although world prices declined 1% (qoq), domestic prices increased 9% (qoq) to Rs. 172/kg. The
increase was primarily because of a 2% depreciation of the rupee against the US dollar.
In 2015, world aluminium prices are forecast to average around $1,900/t, representing an average
annual increase of 2-5%. Aluminium production growth is forecast to outpace consumption and
result in stocks increasing to 7.5 weeks of consumption in 2015. While high input costs are likely to
support higher prices in 2015, the abundance of spare capacity in China that can respond quickly
to higher prices will moderate any price recovery. Most of the growth in aluminium consumption
will come from emerging economies; while OECD economies are experiencing moderate economic
recoveries their aluminium consumption is still expected to remain below pre-2008/09 levels.
Despite recent production cuts, new smelter capacity against the backdrop of weak demand could
cause prices to remain depressed. While the US, China and India are expected to drive aluminium
demand in 2015, consumption in Europe is forecast to stagnate. Production curtailments
announced in 2013 are expected to have a more noticeable effect in 2014-15 with the loss of a full
years production. However, this will only partially offset relatively strong growth in Chinese
production and new onstream capacity in the Middle East. The world, excluding China, could
www.imacs.in

50

Industry Comment

Aluminium

continue to be in short supply due to shut downs, production curtailments and strong demand in
South America and North America.

Duty Structure
Customs duties on imported aluminium have declined from 35% in March 2002 to 5% at present.
In January 2004, the special additional duty (SAD) of 4% which was also levied on imports of
aluminium was abolished, reducing the effective customs duties levied on all imports. However, the
Finance Act of 2004, which has been in effect since July 8, 2004, levies an additional surcharge at
the rate of 2% of the total customs duty payable which has been further increased to 3% of the
total customs duty payable effective March 1, 2007.
Cus to ms D uti es o n A l umi ni u m
As of

28-02-02
01-03-02 to 08-01-04
09-01-04 to 07-07-04
08-07-04 to 28-02-05
01-03-05 to 28-02-06
01-03-06 to 21-01-07
22-01-07 onwards

35
25
20
15
10
7.5
5

Indias primary producers generally sell aluminium at a premium to the LME price, due in part to
the customs duties payable on imported products, and freight, port handling charges etc. The
decline in duty protection has resulted in a narrowing differential between landed and domestic
costs. The reduction in customs duties on non-ferrous metals would keep a check on a rise in
prices, as landed cost of these would effectively reduce, thus reducing the net difference between
landed and domestic costs.

www.imacs.in

51

Industry Comment

Aluminium

Tre n ds i n I nt er na ti o n a l a n d D om es ti c Al u mi ni u m Pri ces

Average per tonne
Avge LME (Rs.)-LS
200,000

3,500

Ingot Mumbai (Rs.)-LS

Avge LME (US$)-RS

180,000

3,000

160,000

2,500

140,000

2,000

120,000
1,500

100,000

1,000

80,000

500

40,000

0
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14

60,000

The excise duty in India on aluminium and its products was very high till FY1993. Subsequently it
was reduced to a uniform 15% in FY1996. In FY2000, as part of the process of rationalising excise
duties, the duty on aluminium was increased marginally to 16%. In FY2001, the excise rates were
rationalised for all products across the board to 16%. Excise duty was cut to 14% in 2008, to 10% in
December 2008, and to 8% in February 2009. The excise duty was increased to 10% in the Union
Budget for 2010-11, and to 12% in the Union Budget for 2012-13. In addition, an additional charge
of 3% on the excise duty is payable.
Exci s e D ut y o n Al u mi ni um a n d Al u mi ni um Pro d uc ts
%
Year
1989
1990
1991
1992
1993
1994
1995
1996-98
1999-2008
2008-5.12.08
6.12.08-23.02.09
24.02.09 to 26.02.10
27.02.10 to 16.03.12
16.03.12 to present

Metal

Foils

Sheets

Bars/rods

Wires

13.6
29.2
29.2
29
30.3
25
20
15
16
14
10
8
10
12

15.8
26.2
26.2
27.5
28.8
25
20
15
16
14
10
8
10
12

15.8
15.8
15.8
16.5
17.3
15
15
15
16
14
10
8
10
12

18.9
27.3
27.3
38.5
40.2
25
20
15
16
14
10
8
10
12

21
27.3
27.3
27.8
29
25
20
15
16
14
10
8
10
12

www.imacs.in

52

Industry Comment

Aluminium

FOREIGN TRADE
Imports
In 1989, following decontrol of the domestic aluminium industry, imports of aluminium and
products was permitted under Open General Licence (OGL). Although domestic aluminium
production exceeds the domestic demand, India imports an average 10-15% of the total domestic
supply of aluminium. Although the landed price of the imported metal exceeds domestic prices,
imports are still necessary because of the shortage of domestically produced ingots. Since most
domestic primary producers have their own downstream capacities, their captive consumption is
significantly high. Thus there is shortage of ingots for standalone secondary producers in India.
In di as I m po rts of Al umi ni u m a n d Al u mi ni um P ro d uc ts
Rs. Million

Growth

Item

2010

2011

2012

2013

2014

2014 2012-14

Unwrought
Waste and Scrap
Powder and Flakes
Bars-Rods and Profiles
Wire
Pellets, Sheets and strips of thickness
>0.2 mm
Foil
Tubes and Pipes
Tube or Pipe Fittings
Structures & Parts of Structures
Reservoirs, Tanks, Vats, etc.
Casks, Drums, Cans, etc.
Containers for CNG/LPG
Stranded Wire, cables, plaited bands,
and likes
Table, Kitchen/other households
articles, etc.
Others
Total

20,885
23,407
163
2,113
550

25,405
40,706
86
2,795
709

29,222
60,722
140
5,495
584

37,918
73,846
244
7,677
795

44,807
75,689
240
5,389
1,055

11.7%
46.2%
32.2%
26.2%
1.7%

20.8%
23.0%
40.8%
24.5%
14.2%

7,630
8,045
1,089
272
2,557
83
1,714
47

11,715
8,407
1,880
601
3,237
167
1,100
47

13,107
16,537
2,415
503
4,563
188
1,537
90

18,121
17,015
3,176
234
5,846
205
1,819
136

20,120
19,346
3,386
428
6,125
213
1,889
403

18.5%
27.5%
39.5%
6.3%
21.5%
-8.8%
-11.4%
-22.7%

19.8%
32.0%
21.7%
-10.7%
23.7%
8.5%
19.7%
104.5%

28

36

104

256

102

47.8%

41.2%

445
658
1,803
1,664
1,395
69.2%
3,133
3,672
4,706
5,511
5,735
28.8%
72,160 101,220 141,716 174,463 186,322 27.3%

28.5%
16.0%
22.6%

Aluminium as % of total
imports

0.53%

0.60%

0.60%

0.65%

0.69%

Indias imports of aluminium and products primarily comprises unwrought items (ingots, billets,
bars, and rods), and scrap. Scrap imports have increased from 236 kt in FY2006 to 722 kt in FY2013.
However, imports of scrap declined to 509 kt in FY2014 because of lower domestic demand.
Imports are primarily from Europe and have been driven by a strong increase in capacity for
melting scrap, particularly in China and India, countries which up to now have only generated low
volumes of domestic scrap. Unwrought (non-alloyed and alloyed) imports have also increased in
volume terms from 184 kt in FY2009 to 215 kt in FY2014. In value terms, imports have increased at
a 3-year CAGR of 22.6% to around Rs. 186 billion in FY2014.
www.imacs.in

53

Industry Comment

Aluminium

Exports
India has been exporting a considerable part of its aluminium production. Since the Indian
producers are among the least cost producers of the metal, they have a global cost advantage.
Hence, aluminium is exported at profitable margins. Cost competitiveness has also resulted in an
increasing trend of Indian aluminium exports. Exports witnessed growth at a CAGR of 27% during
FY2012-14.
In di as E x por ts of Al u mi ni u m a n d Al u mi ni u m Pro d uc ts
Rs. Million

Growth

Item

2010

2011

2012

2013

2014

2014 2012-14

Unwrought
Waste and Scrap
Powder and Flakes
Bars-Rods and Profiles
Wire
Pellets, Sheets and strips of thickness
>0.2 mm
Foil
Tubes and Pipes
Tube or Pipe Fittings
Structures & Parts of Structures
Reservoirs, Tanks, Vats, etc.
Casks, Drums, Cans, etc.
Containers for CNG/LPG
Stranded Wire, cables, plaited bands,
and likes
Table, Kitchen/other households
articles, etc.
Others
Total

25,924
171
337
2,399
287

30,240
235
484
2,476
736

31,569
503
732
2,679
1,635

35,607
410
787
3,131
2,702

51,660
348
835
3,032
2,304

11.4%
62.5%
21.9%
-6.1%
78.6%

19.5%
13.9%
19.9%
7.0%
46.3%

4,041
1,798
180
167
783
16
693
22

3,795
1,866
205
147
955
7
1,190
43

5,885
2,450
270
278
1,419
3
1,638
69

7,286
2,994
361
110
1,732
6
2,535
81

14,291
3,631
570
100
1,626
6
2,358
276

-3.0%
-8.8%
3.2%
4.6%
18.0%
-39.2%
51.6%
22.9%

55.6%
24.9%
40.7%
-11.9%
19.4%
-5.8%
25.6%
85.7%

5,382

5,145

7,254

10,736

12,310

-1.5%

33.7%

2,820
4,158
49,178

2,962
6,043
56,531

4,252
11,391
72,025

4,520
4,641
23.3%
14,158
18,264
30.6%
87,155 116,253 10.5%

0.58%

0.49%

0.49%

0.53%

16.1%
44.6%
27.2%

Aluminium as % of total
exports

0.61%

Although Indias aluminium exports have increased at a high rate in recent years, India accounts for
only 1.8% of total world aluminium exports of 20.9 mt in 2013. The low share of Indias exports has
been primary because of domestic capacity constraints. Indian aluminium producers have
furthered expand their production capacities, both for growing domestic market and exports. As a
result, Indias share of world exports have expanded from 0.9% in 2008 to 1.8% in 2013.
A significant proportion of world aluminium production enters world trade with exports accounting
for around 37% of total aluminium production in 2013. The major exporters are Russian Federation,
Canada, Australia, and Norway. Major importers include US, Japan, and Germany.

www.imacs.in

54

Industry Comment

Aluminium

Wo rl d Al u mi ni u m Ex p or ts a n d Im p or ts
Thousand tonnes
Thousand tonnes

Growth

Country

2009

2010

2011

2012

2013

2013

2009-13

Exports

19,277

20,835

21,727

20,849

20,878

0.1%

0.0%

Russian Federation
Canada
Netherlands
Australia
Norway
Iceland
UAE
US
Brazil
South Africa
Germany
New Zealand
India
Imports

4,696
2,476
1,636
1,674
1,356
792
130
353
754
643
396
242
278
18,273

4,876
2,523
2,053
1,692
1,496
812
148
449
606
594
473
319
353
20,486

5,583
2,486
1,895
1,681
1,429
761
238
509
524
593
435
333
271
20,938

5,453
2,400
1,779
1,650
1,354
778
613
528
524
497
388
366
316
20,837

5,258
2,630
2,074
1,541
1,254
716
653
515
420
617
420
301
385
20,705

-3.6%
9.6%
16.6%
-6.6%
-7.4%
-7.9%
6.6%
-2.4%
-19.8%
24.3%
8.4%
-17.6%
22.1%
-0.6%

1.8%
0.8%
1.7%
-1.7%
-4.6%
-1.2%
42.6%
6.3%
-10.9%
0.6%
-1.1%
-0.2%
14.8%
1.3%

3,129
1,958
1,728
1,544
1,123
560
595
374
1,740
449
426
369
279
398
336
257
180
258

2,766
2,740
2,392
1,966
1,318
743
920
557
365
763
540
489
418
467
580
349
312
218

2,696
2,693
2,583
2,071
1,318
885
1,047
561
333
623
564
466
474
509
478
331
326
230

2,855
2,751
2,524
1,959
1,429
934
845
642
638
562
553
522
446
412
339
315
311
292

2,897
2,480
2,503
1,959
1,429
990
986
642
481
536
592
558
392
470
339
326
319
348

1.5%
-9.9%
-0.8%
0.0%
0.0%
6.1%
16.7%
0.0%
-24.6%
-4.7%
7.0%
7.0%
-12.1%
14.1%
0.0%
3.4%
2.6%
19.4%

-0.2%
-4.1%
3.4%
-0.3%
5.7%
10.6%
2.3%
6.9%
13.1%
-0.8%
3.3%
5.0%
0.9%
-1.6%
-5.1%
-2.2%
6.8%
15.4%

US
Japan
Germany
Netherlands
Korea
Turkey
Italy
Mexico
China
Belgium
Taiwan
Thailand
Austria
France
Norway
Spain
Hungary
India

M A JO R C O S T S
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.

www.imacs.in

55

Industry Comment

Aluminium

Bauxite
Bauxite is typically classified according to its intended commercial application, such as abrasive,
cement, chemical, metallurgical, and refractory. Of all bauxite mined, approximately 85% is
converted to alumina for the production of aluminium metal, and an additional 10% is converted
to various forms of specialty aluminas. The remaining 5% is used directly for non-metallurgical
bauxite applications. Worldwide, bauxite is the only raw material used in the production of alumina
on a commercial scale. There are several types of bauxite with alumina content ranging from 3560%. At the refinery, bauxite is accepted as raw material and is converted into alumina by a process
called the Bayer process. This includes the digestion of bauxite with caustic soda, clarification of
the liquor stream, precipitation of alumina hydrate and, finally, the calcinations of alumina.
World bauxite resources are estimated to be 55 to 75 bt, located in Africa (32%), Oceania (23%),
South America and the Caribbean (21%), and Asia (18%). World bauxite reserves are presently
estimated at 29 bt. From a geologic point of view, bauxite is a residual rock that formed
intermittently throughout much of the geologic record during periods of intense continental sub
aerial weathering. As such, bauxite formation is the result of distinct climatic and tectonic
conditions favourable for sustaining prolonged weathering processes. Bauxite deposits are
classified in three genetic types (Laterite, Karst, Tikhvin) according to mineralogy, chemistry, and
host-rock lithology. Of all known bauxite deposits, about 88% belong to the laterite-type, 11.5%
are of the karst-type, and the remaining 0.5% are of the Tikhvin type. Laterite bauxites are
developed preferentially on flat-topped plateaus and occur on large continental-scale plantation
surfaces exposed to a tropical monsoon climate.
The ore minerals in bauxite comprise gibbsite, boehnite, and diaspore. Gibbsitic bauxite is the
relatively low concentrate ore, while the other two are comparatively richer. However, of the
bauxite ores mined, the gibbsitic variety is most abundant, whereas boehmitic ore is found only in
small traces, which renders its extraction less economic. The mineralogy of bauxite deposits
controls the efficacy of the Bayer process. Gibbsite is more soluble in caustic soda solution than
boehmite and diaspore. Therefore, gibbsitic bauxite has lower energy requirements than boehmitic
ore at the refining stage whereas diasporic bauxite requires the highest energy. Around 80% of
Indian bauxite contains alumina in the gibbsite form, which requires less power for further
processing. The digestion of bauxite with caustic soda is influenced by the mineralogical
composition of bauxite. Gibbsitic bauxite can be digested at temperatures of 105-145C at
atmospheric pressure; boehmitic bauxite require temperatures of up to 240C at high or medium
pressure.
The world-wide geographic distribution of bauxite deposits suggests accumulation of laterite type
bauxite in a number of large provinces such as Australia, the Caribbean, the Guyana and Brazilian
shields in South America, as well as the Guinea Shield and Cameroon in West Africa. Karst-type
deposits are known to occur preferentially in Europe and Jamaica.

www.imacs.in

56

Industry Comment

Aluminium

Wo rl d Di s tri b u ti o n o f Ba uxi t e De pos i ts

Guinea has the worlds largest bauxite reserves of 7.4 bt, followed by Australia (6 bt), Brazil (2.6 bt),
Jamaica (2 bt), Guyana (850 mt), and China (830 mt).
Wo rl d Ba uxi te Mi ne Pro d uc ti o n , R es er ves an d Res er ve Bas e
mt
Production

Reserves

Country

2008

2009

2010

2011

2012

2013

Australia
China
Brazil
Jamaica
Guinea
India

61.4
35.0
22.0
14.0
18.5
21.2

65.2
40.0
28.2
7.8
15.6
16.0

68.4
44.0
28.1
8.5
17.4
18.0

70.0
45.0
31.8
10.2
17.6
19.0

76.3
47.0
34.0
9.3
17.8
19.0

77.0
47.0
34.2
9.5
17.0
19.0

6,000
830
2,600
2,000
7,400
540

6.3
5.5
5.2
2.2
2.1
205.0

5.8
2.5
4.0
2.1
1.8
199.0

5.5
2.5
4.0
2.1
1.8
209.0

5.9
4.5
4.0
2.1
1.8
259.0

5.7
2.0
3.4
2.1
2.2
258.0

5.2
2.5
3.4
2.0
2.3
259.0

200
320
580
600
850
28,000

Russia
Venezuela
Suriname
Greece
Guyana
World

The majority of currently operating bauxite mines contain reserves in the range from 10 to 1,000
mt dry bauxite whereby ore grades vary between 40% and 55%. Accordingly, in-situ alumina
reserves range from 2.5 to 250 mt with most deposits.
At least for the foreseeable future, there is an abundance of bauxite resources and reserves
globally to ensure a readily accessible supply. World bauxite supply estimates, derived from ratios
of known world reserves and world production for a given year (i.e. bauxite reserve life index or
www.imacs.in

57

Industry Comment

Aluminium

RLI) indicate adequate bauxite reserves for 106 years. Further, historic trends in the bauxite reserve
life index (RLI) suggests that the pattern is cyclic, with a period of low RLIs followed by a period of
high values. A low of 60 years was recorded in 1969 and a high of almost 400 years in 1980.
India is an important player in the aluminium sector, especially because of its abundant bauxite
2
reserves. India had bauxite resources of 3.48 billion tonnes (bt) as of April 1, 2010. The major
Indian bauxite deposits are located in Odisha (52%), Andhra Pradesh (17%), Gujarat (7%),
Maharashtra and Chattisgarh (5% each).
In di as Ba u xi t e Res o u rces
Million tonnes (mt)
Reserves

Remaining

Proved

Probable

Total

Resources

Total

321

272

593

2,887

3,480

Chemical
Refractory
Chemical/Refractory mixed
Metallurgical-1
Metallurgical-2
Metallurgical mixed
Low Grade
Mixed Grade
Abrasive
Others
Unclassified
Not Known
By States

2
26
3
185
29
11
32
21
0
9
1
1

0
46
0
193
13
5
10
2
0
3
0
0

2
72
3
378
42
17
42
23
0
11
1
1

12
21
14
1,853
538
90
232
35
2
17
52
21

14
94
17
2,231
580
107
273
58
2
29
53
22

Andhra Pradesh
Bihar
Chhattisgarh
Goa
Gujarat
Jammu & Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Odisha
Rajasthan
Tamil Nadu
Uttar Pradesh

0
0
21
15
99
0
16
5
0
17
14
132
0
1
0

0
0
53
1
15
0
20
1
0
3
12
167
0
0
0

0
0
74
16
114
0
36
6
0
20
26
300
0
1
0

615
4
96
42
123
2
110
50
14
127
149
1,511
1
24
19

615
4
171
58
237
2
146
56
14
147
175
1,810
1
25
19

Total
By Grades

Resources are defined as concentration of naturally occurring solid, liquid, or gaseous material in or on the
Earths crust in such form and amount that economic extraction of a commodity from the concentration is
currently or potentially feasible.

www.imacs.in

58

Industry Comment

Aluminium

At current extraction rates, the two states of Odisha and Andhra Pradesh alone have the equivalent
of over 200 years of Indian requirements. Even using the more conservative the USGS reserve
estimate, India has reserves equivalent to almost 70 years at current output. According to the
USGS, India has the seventh largest reserves of bauxite ore in the world, with total recoverable
reserves estimated at 900 mt. These bauxite ore reserves are high grade and require less energy to
refine, thus resulting in significant cost advantages for Indian aluminium producers.
Though there are 343 bauxite mining leases operating in the country, most of these are small open
cast and manually operated. In all, around 152 producers reported production of bauxite in 201213. Five principal bauxite mines, operated by primary producers, contributed 55% of the total
production. Around 39 major mines, each producing more than 50 ktpa, together accounted for
90% of the total production. These are mostly the captive bauxite mines of the major alumina
producers in the country, and the mines of Gujarat Mineral Development Corporation (GMDC).
Among these, the Panchpatmali bauxite mine of National Aluminium Company Ltd. (Nalco) in
Odisha accounts for about 38% of the countrys production. Except for Nalco, all the other primary
producers do not have adequate bauxite reserves in their mining leases to meet the requirement
of existing capacity of their alumina refineries. These companies are forced to purchase bauxite
from domestic market from small mine owners of the locality. Exploration and development of new
mines has been constrained by issues related to grant of mining lease, environmental clearance,
land acquisition, and forest clearance.
Odisha accounted for 36% of Indias bauxite production during FY2013, followed by Gujarat,
Jharkhand, and Maharashtra (13% each), and Chhattisgarh (12%). About 9.65 mt of the total
bauxite production of 15.36 mt during FY2013 was of grade 40-45%, 1.91 mt was of 45-50% grade,
and 1.14 mt was of below 40% grade.
In di as Ba u xi t e Pro d u cti o n
Thousand tonnes
FY
Chattisgarh
Goa
Gujarat
Jharkhand
Karnataka
MP
Maharashtra
Odisha
TN
World

2008

2009

2010

2011

2012

2013

1,794
129
11,923
1,250
162
534
1,805
4,686
343
22,625

1,674
463
3,514
1,585
128
1,038
2,054
4,734
270
15,460

1,687
31
2,687
1,671
123
1,057
1,985
4,880
3
14,124

2,110
101
938
1,856
65
616
2,134
4,857
46
12,723

2,392
85
847
1,970
83
813
2,286
5,055
69
13,600

1,818
87
2,018
2,008
81
822
1,970
5,460
96
15,360

Indias bauxite production has increased from 8.69 mt in FY2002 to an estimated 22.6 mt in
FY2008, but declined to 19.1 mt in FY2014. Indian aluminium producers are one of the lowest cost
producers in the world, primarily because of lower cost of bauxite production. The average cost of
bauxite production in India is $5/t as against the world average of $20-25/t. Around 80% of Indian
www.imacs.in

59

Industry Comment

Aluminium

bauxite is highly gibbsitic (i.e. with over 40% alumina) with very low reactive silica, which allows
production of low-cost alumina. Gibbsitic bauxite is found mainly in Odisha and AP, while the
bauxite from captive mines in Bihar, MP, TN and AP contain 15-30% monohydrate alumina.
The alumina plants based in Central India are based on small bauxite deposits scattered all along
Bihar, MP and Maharashtra. In these areas, bauxite deposits/mines are smaller in size and reserves
are limited (few hundred thousands to maximum 10 mt); bauxite occurrence is erratic; silica is
highly variable (2-5%), and alumina content is high (47-50%).
In di as Ba u xi t e Pro d u cti o n
FY
30,000

9,000

Production-thousand tonnes-LS
Value-Rs. Million-RS

8,000

26,000

7,000

22,625
22,000
19,139
18,000

5,000

15,733

15,460

15,360

14,124

14,000
10,957

11,964

6,000

12,723

12,596

4,000

13,600

3,000

10,000

2,000

6,000

1,000
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

While India has 2% of the world's total bauxite deposits, it accounts for 3% of world aluminium
production, which in fact points to significant potential for capacity additions (to meet both
domestic and export demand over the long term). There are no major bauxite supply constraints in
India, and aluminium production is more a function of smelter capacity rather than bauxite
availability.
In India, Nalco is the largest producer of bauxite with estimated production of 6.29 mt in FY2014.
Nalcos bauxite mines at Panchpatmali hills of Koraput district in Odisha have deposits of 310 mt,
with low silica content of 2%, and high alumina content of 45%. It has recently expanded the
capacity of its bauxite mines from 6.3 mtpa to 6.83 mtpa. Approximately 90% of the Bauxite from
the mine represents Gibbsitic Alumina, also called Tri-hydrate Alumina, a property which allows it
to be digested at a relatively low temperature and at atmospheric pressure during the alumina
refining process. Hindalco obtains bauxite from two major sources: own mines (72% of
requirements) and third party suppliers (28% of requirements), which primarily consist of
independent mines. Balco has two captive bauxite mines at Mainpat and BodaiDaldali, both in
Chattisgarh. These two mines provide all of its bauxite requirements for its alumina refinery. The
aggregate bauxite extraction limit for the two mines approved by the Indian Bureau of Mines (IBM)
www.imacs.in

60

Industry Comment

Aluminium

is 2 mtpa (comprising 750 ktpa at Mainpat and 1,250 ktpa at Bodai-Daldali). Balcos Bodai-Daldali
bauxite mines provide a majority of the bauxite required for Balcos smelters. The mining lease of
its Mainpat bauxite mine expired on July 8, 2012 and Balco has applied for the renewal of the
mining lease for a further period of 10 years from July 2012. Balco has temporarily stopped the
mining activity at Mainpat on account of pending approval from the necessary mining authorities.
As of March 31, 2014, Balco estimates the reserves at Bodai-Daldali to be 2.8 mt and the remaining
mine life to be approximately 2 years based on reserves and planned production. Bodai-Daldali
was commissioned in 2004 by Balco and is renewable mining lease that is valid until March 26,
2017. Balcos bauxite comprises primarily gibbsite with boehmite and minor diaspore. The average
grade of the bauxite is, at present, approximately 48% aluminium oxide (available alumina is
approximately 43%) and silica levels of less than 4%. Total production at the Bodai-Daldali mine
since the commencement of production has been 4.1 mt of bauxite, with production of
approximately 472 kt in FY2014. The Mainpat mine did not produce bauxite during FY2014 due to
a pending renewal of mining lease and a restriction from removing the mined ore from the mining
site.

Alumina
Broadly, alumina can be classified into:
Standard alumina, which is used for the production of aluminium (90%).
Special alumina, which is used in non-metallurgical applications such as ceramics,
insulators and refractories (10%).
The current domestic production of alumina is fairly sufficient to meet the domestic demand. A
substantial portion of the domestic alumina production is exported as well, primarily by Nalco.
Nalco exports around 50-55% of its alumina production. Nalcos alumina exports declined in
FY2007 because of lower alumina production caused by disruptions in production. However,
alumina production returned to near normal levels in FY2008-09 resulting in higher exports during
FY2008. Nalcos alumina exports declined 1% in FY2009 to 852 kt primarily because of higher
domestic requirement. Exports further declined to 640 kt in FY2011. However, exports increased to
944 kt in FY2013 and 1,309 kt in FY2014 caused by lower domestic utilisation. Hindalco was earlier
producing alumina primarily for further processing into primary aluminium and value-added
products. However, following the capacity expansion for alumina from 350 ktpa in FY2003 to 660
ktpa in FY2004, and further to 1,500 ktpa at present, Hindalco substantially increased its alumina
sales. Hindalcos alumina production was around 1.6 mt in FY2014. Considering that it produced
404 kt of primary aluminium in FY2014, nearly 50% of its alumina production was available for
outside sale. SSLs alumina production at Lanjigarh was estimated at 524 kt in FY2014.
Given that the domestic alumina consumption is increasing at a high rate and the industry is
currently operating at high capacity utilisation, the likely rise in aluminium production is expected
to exert pressure on alumina supply and exports as well.

www.imacs.in

61

Industry Comment

Aluminium

N al cos Al umi na Pr o d uc ti o n a n d Ex p or ts
Thousand tonnes
FY

2008

2009

2010

2011

2012

2013

2014

Capacity
Production
Exports
Exports as % of Production

1,575
1,576
860
54.6%

1,575
1,577
852
54.0%

1,575
1,592
703
44.1%

1,575
1,556
640
41.1%

2,100
1,687
793
47.0%

2,100
1,802
944
52.4%

2,100
1,925
1,309
68.0%

The domestic producers have the option to limit alumina exports and divert the same to meet their
aluminium production requirements. However as margins have remained healthy in the export
market for alumina, the alumina producers have chosen to undertake capacity expansions in
alumina instead, for supply in domestic and overseas markets. Alumina imports are primarily by
Balco.
While till the 1960s, alumina refineries used to be located near smelters, currently the refineries are
close to bauxite mines. This shift has been prompted mainly by rising transportation and energy
costs, besides the need for refining plants to have long-term contracts with mines (the refineries
are usually designed for bauxite of specific composition).

Power
Aluminium production can be split into primary aluminium production and recycling. Primary
production is about 20 times as energy intensive as recycling and represents the bulk of energy
consumption. The production of primary aluminium relies on an electrolytic process and is highly
electricity-intensive.
Primary aluminium is produced in three distinct steps: bauxite mining, alumina refining and
aluminium smelting.
3

Energy consumption in bauxite mining ranges from 40 megajoules (MJ) per tonne ore to 470 MJ/t.
Virtually all alumina is produced in the Bayer process, a combination of an extraction (digestion
with caustic soda) and a calcination process. Fuel consumption of a Bayer plant can vary between
10-15 GJ/t of alumina. This could be reduced to 9.5 GJ/t through better heat integration, further
deployment of co-generation and improved co-generation systems. In alumina production, the
average energy intensity of alumina refineries was 14 GJ/t of alumina in 2011, with a range among
different world regions between 9 GJ/t in Latin America and 16.6 GJ/t in China. Data from the
International Aluminium Institute (IAI) show that the specific energy consumption of alumina
refining declined by 0.7% per annum between 2002-13, as compared with an increase of 1.3% per
annum during 1991-2000. Most of the energy consumed in alumina refineries is in the form of
steam used in the main refining process. The calcining (drying) of the alumina also requires large
3

Joule (J) is the SI unit of energy. 1 Kilojoule (KJ)= 1,000 joules (10 joules); Megajoule (MJ)=1,000 KJ (10
9
12
15
joules); Gigajoule= 1,000 MJ (10 joules); Terajoule (TJ)=1,000 GJ (10 joules); Petajoule (PJ)=1,000 TJ (10
18
21
joules); Exajoule (EJ)=1,000 PJ (10 joules), Zettajoule (ZJ)=1,000 EJ (10 joules). The conversion equivalent
between the calorie and the joule is the International Steam Table (IT) value which is defined to be 4.1868
joules per calorie.

www.imacs.in

62

Industry Comment

Aluminium

amounts of high temperature heat. Because of their high demand for steam, modern plants use
combined heat and power systems (CHP) systems. World alumina production was around 107 mt
in 2013. Total energy consumption was estimated at 14.1 EJ.
Lo n g- T er m T re n ds i n En er gy Us e d o f Me tal l ur gi cal Al umi na P ro d uce d
MJ/t
43,000
38,000

World

North America

South America

Europe

Oceania

China

33,000
28,000
23,000
18,000
13,000
8,000
1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

The above stated figures do not include full coverage of China. Bauxite produced in China is mainly
boehmite. Many Chinese bauxite deposits have high silica content and so are of a low grade. These
require a more complex refining process. Only 14% of Chinas alumina output is currently
produced by the standard Bayer process; the remainder uses a combination of sintering and part
of the Bayer process. The energy intensity of such combined processes ranges at 24-52 GJ/t of
alumina making them between two and four times more energy intensive than the ordinary Bayer
4
process .

In October 2007, Chinas National Development and Reform Commission (NDRC) implemented new
standards that must be met for permits to be issued for bauxite mines, alumina refineries, primary aluminium
smelting operations, secondary aluminium and aluminium process plants. The standards cover a range of
elements, such as scale of production, minimum size of plants and furnaces, technology to be implemented,
resource use, as well as water and energy consumption. For bauxite mining, overall energy consumption must
be less than 25 kg of coal equivalent per tonne produced for underground mining, and less than 13 kg for
above-ground operations. For alumina refining, energy consumption for newly built Bayer method operations
must be less than 500 kg of coal equivalent per tonne of alumina, and the recovery rate at least 81%. For
other methods, the consumption is limited to 800 kg of coal equivalent per tonne, with a recovery rate of at
least 90%. For primary aluminium, new and upgraded smelters must consume less than 14,300 KWh/t of
primary aluminium, with electrical efficiency over 94%. For existing smelters, energy consumption is limited to
14,450 KWh/t with 93% electrical efficiency. For aluminium processing, energy consumption for new facilities
is limited to 350 kg of coal equivalent or 1,150 KWh/t of finished product. For existing facilities the limit is 410
kg of coal equivalent or 1,250 KWh/t.

www.imacs.in

63

Industry Comment

Aluminium

The production of 1 kg of aluminium requires about 2 kg of alumina. The main energy use in
aluminium production is related to the electrochemical conversion of alumina into aluminium. The
main cell-types are Soderberg, which uses in-situ-baked electrodes, and the Hall-Hroult process,
which uses point feed pre-baked (PFPB) electrodes. The Hall-Hroult electrolysis process is a
mature technology, but gradual improvements of its productivity and environmental performance
are still possible.
Total final energy use by industry reached 143 EJ in 2011 or 2,509 million tonnes of oil equivalent
(mtoe), up 36% since 2000. The increase is largely fuelled by rising materials demand in non-OECD
countries, which now use 66% of industrial energy, up from 50% in 2000. Industrial CO2 emissions
grew by 17% between 2007 and 2011. must be reversed: from 2007 to 2011, emissions grew by
17%. Substantial potential to further improve energy efficiency exists. By applying current best
available technologies (BATs), the technical potential to reduce energy use in the cement sector is
18%, 26% in pulp and paper, and 11% in aluminium. These potentials are unlikely to be fully
tapped over the next 10 years due to slow turnover of capacity stock, high costs and fluctuation in
raw material availability.
The five most energy-intensive industry sectorsiron and steel (22%), iron and steel (26 EJ),
cement (11 EJ), chemicals and petrochemicals (36 EJ), pulp and paper (6 EJ), and aluminium (4 EJ)
account for over 65% of total industrial energy consumption. These sectors consume about threequarters of all fossil fuels used in industry and are responsible for an even higher share (78%) of
total industrial CO2 emissions. The aluminium industry is highly electricity-intensive. Primary
aluminium smelters use around 4% of global electricity consumption. In total, the aluminium
industry emits 0.4 Gt CO2-equivalent of greenhouse gases, including process emissions and
indirect emissions from electricity production, equivalent to just under 1% of total global
greenhouse-gas emissions.
Electricity consumption for Soderberg smelters is about 15.1-17.5 kilowatt hour (KWh)/kg (or 60 GJ
of electricity per tonne) of aluminium, while point PFPB Hall-Hroult smelters use 13.6-15.7
KWh/kg (or 50-55 GJ of electricity per tonne). The theoretical minimum energy use is about 6
MWh/t. More than 80% of primary aluminium production is now from smelters using modern prebaked anodes although some facilities still use an older Soderberg technology with in situ baked
anodes. The current aim of the IAIs members is to retrofit or replace existing smelters in order to
reduce electricity consumption to 14.5 KWh/kg of aluminium in the short term, with further
reductions thereafter. New world-class plants can achieve around 13.5 KWh/kg or a saving of 12%
compared to the current world average.
The difference in efficiency between the best and worst plants is approximately 20% and can be
attributed to different cell types and to the size of the smelters, which is generally related to the
age of the plants. The global average consumption was 14,560 KWh/kg of aluminium in 2013.

www.imacs.in

64

Industry Comment

Aluminium

Lo n g- T er m T re n ds i n E ne rg y Us e d pe r M et ri c T on n e of Pri ma ry Al umi ni um
Pro d uc ti o n
KWh/t
18,000

17,000

Oceania

Asia (excl. China)

GCC

China

North America

South America

Europe

World

16,000

15,000

14,000

13,000

12,000
1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Chinas aluminium producers are amongst the most efficient due to new production facilities. The
level of capacity growth in China has caused an acceleration in the rate of improvement in global
energy efficiency for the sector to about 0.7% per annum over the period 2006 to 2012.
Energy efficiency of smelters in Asia, Africa, and Latin America are higher than in Europe and North
America. This is because plants in Asia and Latin America are newer and new plants are typically
based on the most efficient technology available, regardless of location. As a result, a country with
relatively new capital stock will be more energy-efficient than a country with a more mature stock.
Older aluminium smelters are mostly located in developed countries and newer plants tend to be
built in developing countries and emerging markets. As the smelters in developing countries
matures, and older stock is replaced in industrialised countries, differences in energy efficiency
among regions are expected to diminish.
There are several technologies available for primary aluminium production, each with different
energy use and general emission profiles. However, as approximately 25-35% of total costs in an
aluminium plant are related to electricity costs, there is a significant economic incentive to ensure
that new plants are as energy-efficient as possible. In fact, high electricity prices in Europe have led
some aluminium producers to consider closing operating European aluminium plants. An
important consideration in the choice of location for new power plant is the availability of large,
cheap power resources, with raw materials brought by boat sometimes over long distances.
As noted, the PFPB process is an electricity-efficient aluminium smelting technology, with new
plants estimated to require 13,300 KWh/t of aluminium produced, compared with 16,600 KWh/t for
the older Soderberg technologies. The PFPB technology is the most widespread technology for
www.imacs.in

65

Industry Comment

Aluminium

aluminium smelting worldwide, and is becoming more so, as all new plants constructed after 1970
and most plant expansions are based on this technology. Technological developments as well as
an increased share of production from PFPB technologies has led to a significant reduction in
average electricity-intensity for aluminium production in all world regions between 1980 and 2006.
These trends should continue with the continuing phase-out or retro-fitting of the side work prebake and the above mentioned Soderberg technologies. The industry plans to retrofit or replace
existing smelters in order to reduce electricity consumption to 14,500 KWh/t (52.2 GJ/t) in the short
term, and to 13,500-14,000 KWh/t (49-50 GJ/t) as new smelters are built and older ones are retired.
New world-class plants achieve 13,000 KWh/t. Technologies under development such as drained
cells (drained cathodes) and inert anodes offer the promise of further smelter efficiencies.
In addition to being a major electricity user, the industry is also a significant source of process
carbon dioxide (CO2) emissions (from the consumption of carbon anodes) and of perfluorocarbons
(PFCs). PFCs are formed when the level of dissolved aluminium oxide in the cell drops to a point
where the electrolytic bath itself begins to undergo electrolysis. PFCs are potent global greenhouse
gases and have long atmospheric lifetimes. For example, one kg of PFC (CF4) is equivalent to 6,500
kg of CO2. In 2005, the industrial processes (mining, refining, smelting and casting) of the primary
aluminium industry were directly responsible for emitting 140 mt of CO2-equivalent (CO2e). Of
this, around 30 mt originated from two PFCtetrofluormethane (CF4) and hexofluormethane
(C2F6). On average, the smelting process produces 1.6 t of CO2/t of aluminium (from the
consumption of the carbon anodes) and the equivalent of an additional tonne of CO2 from PFC
emissions. In recent years, the aluminium industry has put considerable efforts into reducing PFC
emissions through the use of improved process controls and the phasing-out of older technologies
(in particular SWPB, VSS and HSS cells). As a result, average PFC emissions per tonne of aluminium
were reduced. The global aluminium industry has reduced its PFC emissions per tonne of
production from 4.93 t CO2e/t in 1990 to 0.47 t CO2e/t in 2013. Reported average PFC emissions
per tonne of production have been reduced by 36% between 2006 and 2012. However, there is still
a considerable range of performance between facilities using the same cell technology. This
suggests that there is scope for further reducing PFC emissions in the future. The global aluminium
industry has a voluntary objective to reduce its PFC emissions per tonne of aluminium produced by
50% between 2006 and 2020, equivalent to a 93% reduction from 1990. The development of inert
anodes could end CO2 emissions stemming from the use of carbon anodes and also eliminate
emissions of PFCs from the electrolysis process. Electricity consumption could also be reduced, but
the technology is suited only for new smelters, because the cell design has to be changed
fundamentally. Although inert anodes have been the subject of research for many years, it has not
reached commercial scale. Present forecasts envisage deployment to start between 2015 and 2020
with full commercialisation by 2030. The net effect of successfully deploying inert anodes could be
a reduction in electricity consumption of 10-20% compared to advanced Hall-Hroult smelters, i.e.
from 13 KWh/kg to 11 KWh/kg of aluminium. Apart from the electricity savings, oil and coal
consumption would be reduced by 18 GJ/t of aluminium, because the use of carbon anodes would
be avoided. The electricity consumption for the chemical reaction to produce aluminium would
increase, but the aluminium cell could be redesigned to reduce electricity losses. The so-called
bipolar cell design, which requires inert anodes, is a typical example of a breakthrough technology
that could be rapidly adopted once it was commercially proven.
www.imacs.in

66

Industry Comment

Aluminium

The smelting of primary aluminium employs an electrolytic reduction process that requires a large
and continuous supply of electricity. Interruptions of electricity supply can result in lengthy
production shutdowns, increased costs associated with restarting production, and waste of
production in progress. In extreme cases, interruptions of electricity supply can also cause damage
to or destruction of the expensive equipment and facilities. Pots cool off if they are deprived of
electricity for six consecutive hours, which could cause the molten aluminium in the pot to solidify.
Thus, any interruption in the supply of electricity to aluminium smelters lasting longer than six
hours can cause substantial damage to smelters.
Because of the critical importance of uninterrupted electricity supply, all domestic aluminium
producers have set up CPPs instead of relying on commercial power, which is both costly and
erratic. Nearly 97% of electricity consumed is produced from captive sources, primarily from coalbased plants (99% of total capacity). The balance is based on diesel.
Indian manufacturers are competitive on power costs, which accounts for around 25-30% of
operating cost. The global average power consumption in 2013 was around 14,560 KWh/t of
aluminium. About 80% of Indias primary aluminium production is based on modern pre-baked
technology. As a result, Indian producers compare favourably to the most efficient primary
producers in the world. However, most of the energy consumed is in the form of electricity. Most
of electricity is internally generated and produced from coal-fired plants. As a result, Indias
production of primary aluminium is one of the most CO2 intensive.
El ec t ri ci ty Co ns u m p ti on
FY, KWh/t
17,000

Hindalco

Nalco

SSL

16,000

15,000

14,000

13,000

12,000
2006

2007

2008

2009

2010

2011

2012

2013

2014

Because their plants are newer, Nalco and VAL have lower power consumption, consuming 14,754
KWh/t and 14,226 KWh/t of aluminium, respectively in FY2014. By comparison, Hindalcos power
consumption was 16,383 KWh/t. Hindalco has recently converted its pots at Hirakud from
Soderberg to pre-baked thereby reducing unit power consumption. Balco has higher power
consumption per unit because its older 0.1 mtpa aluminium smelter at Korba (Chattisgarh) uses
www.imacs.in

67

Industry Comment

Aluminium

Soderberg technology. However, its new 245 ktpa aluminium smelter uses PFPB process. The
relatively high cost of operation of Balcos 0.1 mtpa smelter and the steep decline in prices had
made its operations unviable, and consequently operations at the smelter ceased in June 2009.
Malco had the highest consumption primarily because its smelter used Soderberg technology. This
smelter also ceased operations from late-2008. SSL-Jharsuguda has introduced a range of energy
and carbon emission
reduction steps including the reduction of smelter specific direct current energy consumption
through the implementation of slotted anodes. At Balco, automation in the melting furnace and
cooling tower resulted in saving of 750,000 GJ in FY2014.
The captive units of Nalco, Hindalco and SSL have power generating cost of around Rs. 2-3/KWh.
However, these costs have increased in recent years primarily because of an increase in price of
coal and diesel.
Lo n g- T er m T re n ds i n Coa l Pu rc has e Cos ts
Rs./t
Nalco

2,500

Hindalco
SSL

2,000

1,500

1,000

500

0
2007

2008

2009

2010

2011

2012

2013

2014

Their cost of captive power generation is only 30-40% of electricity costs from the grid. Domestic
producers rely on low-cost captive sources of power to meet almost all of their electricity
requirements. The unit power cost of Indian producers is low because of location of captive coal
plants in close proximity to coal deposits, and access to cheaper though lower quality coal.

www.imacs.in

68

Industry Comment

Aluminium

Av er ag e Cos t of Al um i ni um P ro d uc ti o n Per U ni t of Po w er
Rs./KWh
FY

2008

2009

2010

2011

2012

2013

2014

Nalco
Hindalco
SSL
Total

1.29
1.09

1.82
1.08

1.89
1.26

2.31
1.43

2.82
1.65

3.11
1.83
2.47

2.79
1.95
2.22

Nalco
Hindalco
SSL
Share of Captive Power

1.31
1.20

1.87
1.15

1.96
1.35

2.36
1.54

2.90
1.80

3.16
1.96
2.54

2.79
2.08
2.23

99.2%
96.0%

97.7%
97.6%

97.4%
97.2%

98.4%
97.1%

98.0%
96.6%

98.5%
96.8%
99.6%

100.0%
96.8%
99.8%

Own

Nalco
Hindalco
SSL

For example, Hindalcos largest power plant at Renusagar (near its integrated aluminium complex
at Renukoot) is located on the pithead of its sourcing coal mine, which provides it with significant
cost advantages in generating power for use in facilities. Its other power plant, at Hirakud, has a
dedicated coal mine. HILs coal production for captive usage aggregated around 2.24 mt in FY2013
(solely from Talabira Block in Odisha), and has remained in the range of 2.2-2.4 mt. Till 2007, Balco
did not have its own coal mines and its CPPs were dependent on coal from Coal India Limited (CIL)
and its subsidiaries. During FY2006-07, a shortage of coal led CIL to reduce the amount of coal
supplied to Balco, forcing Balco to utilise higher-priced imported coal, thereby increasing its power
generation and aluminium production costs. At present, around 90% of Balcos coal requirements
are met by CIL. Balco had received a coal block allocation of 211 mt for use in its captive power
plants in November 2007. However, production has not started so far. Although Nalco relies on
coal supplies from CIL and its subsidiaries, it has been recently allotted a coal mine at Talcher,
Odisha for captive usage, for which it has now received prior approval for a mining lease. The Utkal
E Coal Block allotted to Nalco has geological reserves of 194 mt, and mineable coal reserves of
around 70 mt. The coal block is likely to be operational by end-2014.
Coal Bl o cks Al l oc a t e d to P ri m ary Al u mi ni u m Pro d uc ers
Company

Block

State

Geological

Date of

Reserves

Allotment

End-Use

(mt)
Hindalco
Hindalco
Hindalco/Essar
Hindalco
Nalco
Balco

Talabira-1
Talabira-II
Mahan
Tubed
Utkal E
Durgapur/Tarai

Odisha
Odisha
MP
Jharkhand
Odisha
Chattisgarh

22.55
152.33
144.20
189.00
194.00
211.37

25-02-1994
10-11-2005
12-04-2006
01-08-2007
27-08-2004
06-11-2007

Power
Power
Power
Power
Power
Power

The primary producers had an earlier allocation of 5 coal blocks with geological reserves of around
900 mt. Except for Hindalcos Talabira Block, production had not started in any of the other coal
blocks allocated to primary producers. Hindalcos coal production from its coal block was around
www.imacs.in

69

Industry Comment

Aluminium

2.3 mt. Coal consumption of primary aluminium producers was around 27 mt in FY2014. Coal from
outside sources was primarily procured through e-auction by Cola India Limited (CIL).
During the period 1993 to 2011, a total of 218 coal blocks were allocated to eligible public and
private sector companies in pursuance of Section 3 of the Coal Mines (Nationalisation) Act, 1973.
Out of these 218 blocks, 40 coal blocks have started production. The allocation of coal blocks was
challenged before the Supreme Court of India (SCI). The SCI in its judgment dated August 25, 2014
and order dated September 24, 2014 has declared all allocations of the coal blocks made through
Screening Committee and through Government Dispensation route since 1993 as arbitrary &
illegal. It has therefore cancelled the allocation of 204 coal blocks out of 218 coal blocks (i.e. except
Tasra coal block allocated to Steel Authority of India Ltd. and Pakri Barwadih coal block allocated
to National Thermal Power Corporation and 12 coal blocks allocated for Ultra Mega Power
Projects). In case of 42 coal blocks (37 producing and 5 likely to come under production),
cancellation shall take effect from March 31, 2015. Thus, the allocation of coal blocks to primary
aluminium producers now stands cancelled. In the case of Hindalcos Talabira-I coal block where
production had commenced, the cancellation shall have effect from March 31, 2015 subject to
payment of an additional levy of Rs. 295/t of coal extracted from beginning till March 31, 2015.
Pursuant to the orders of the Supreme Court, the Government of India has promulgated the Coal
Mines (Special Provisions) Ordinance, 2014 on October 21, 2014, which inter alia provides for
allocation of cancelled coal blocks by way of auction and bidding process. The ordinance also
provides for payment of compensation to prior allottees towards investments made in `land and
mine infrastructure for which details have already been submitted to the Ministry of Coal.
Reallocation of coal blocks will now be made in pursuance of the provisions of the Coal Mines
(Special Provisions) Ordinance, 2014 and the Rules made thereunder in a time bound manner to
ensure that there is no disruption in supply of coal. As per the Ordinance, allocation of Schedule II
and Schedule III coal mines is to be made for specified end-use. Based on the recommendations
of the Technical Committee constituted to formulate criteria and classify coal mines/coal blocks for
auction and allotment, a list of coal blocks earmarked for auction and allocation with their specified
end-use has been issued on December 18, 2014. The Government has also formulated an
Approach Paper for auctioning of coal mines which includes the proposed time schedule of the
bidding process.
Of the 204 de-allocated blocks, the Government is likely to initiate redistribution, through
auctioning or allocation, of the 42 operational blocks before March 31, 2015, after which mining
would not be allowed by the prior allottees. These 42 blocks have a rated mine capacity of 81
mtpa. Additionally, the Government has further identified a list of 59 blocks (which have achieved
substantial progress thus far) and has initiated the process of re-distribution. The initial list of 101
coal blocks put up for auction or allotment has been classified into `non-regulated (for iron &
steel, cement, & captive power plants) and `regulated (for power sector). For the `non-regulated
sector, the forward auction method would be applicable, where the highest bidder would be
offered the block. For the power sector, the reverse auction method would be applicable, where
the lowest bidder would win the block.
www.imacs.in

70

Industry Comment

Aluminium

In the first pool of 101 blocks, the Government has allocated 67 blocks with geological reserves of
14.7 bt for the power sector. For the non-regulated sector, 34 blocks have been identified with
reserves of 2.8 bt. The non-regulated sectors which have been impacted the most include steel
(allocated 20% of reserves earlier), commercial mining by State Government entities (allocated 14%
of reserves earlier), and aluminium (for captive power generation). For these 101 blocks with
geological reserves of 17.5 bt, coal blocks with geological reserves of around 3.2 bt, which were
earlier allocated to the `non-regulated sector, are now reserved for the power sector. Moreover,
given the urgency of getting coal blocks, and with all the non-regulated sectors being clubbed into
one group, competitive bidding in the upcoming auctions is expected to be intense.
Allocation of the four coal blocks to Hindalco has been cancelled. Hindalcos three coal blocks at
Talabira and Tubed have now been reserved for allocation to the power sector, and Hindalco will
not be eligible to bid for these blocks. Hindalcos erstwhile coal block at Mahan had not
commenced production prior to the cancellation. However, under the new allocation rules, this
block has been reserved specifically for power sector. Hindalco had planned to use this block as a
source of captive coal for its new aluminium smelter plant in MP. Hindalco and Essar had been
allocated this coal block through a joint ventureMahan Coal Ltd. (MCL). MCL was to supply coal
Essars 1,200 MW power project and Hindalcos new 359 ktpa smelter. The targeted capacity of the
coal production from Mahan coal block was 8.5 mtpa out of which 5.1 mtpa was to be supplied to
Essar and 3.4 mtpa was to be supplied to Hindalco. Hindalco will now not be eligible for bidding
for this block and will have to bid for mines falling under the `non-regulated sector near its plant
in Bargawan, MP. However, the freight costs could increase if it gets a mine at a considerable
distance from its proposed smelter. All alternative coal blocks available to Hindalco are located at a
distance of between 100 km and 700 km from its existing smelters in Madhya Pradesh and Odisha,
which could cause an increase in freight costs. Hindalco will also have to spend considerable
amount on new coal blocks, with gestation period of 3-5 years. In the interim, Hindalco will have to
rely on outside procurement of coal.
Nalcos Utkal coal block allocation will also be cancelled. Coal production has so far not
commenced from this coal block. Nalco has claimed considerable progress in developing the coal
block and has reported 60-70% land acquisition for the project. It also has claimed an investment
of Rs. 1 billion so far in the development of the coal block. Balcos coal block allocation at
Durgapur/Tarai (Chattisgarh) has also been cancelled.

Other Consummables
Ca u stic S oda (N a OH)
Caustic Soda is used in the refining of bauxite. It is a key raw material used to dissolve the bauxite
in the alumina refining process. The caustic soda requirement varies significantly depending on the
bauxite quality and technology employed. In the Bayer process, caustic soda is used to extract the
alumina content from ground bauxite, at temperatures suitable for the particular mineralogy of
bauxite, after which the resultant sodium aluminate solution is separated from the undissolved
residue called red mud. The solution is then subjected to seeded precipitation to produce alumina
hydrate, which is then calcined into alumina.
www.imacs.in

71

Industry Comment

Aluminium

Ca lcin ed P etr oleu m Coke (CP C)

Calcined Petroleum Coke is used in the electrolysis process to make aluminium. Around 0.40.5
tonne of CPC is required to produce one tonne of aluminium. CPC is manufactured by calcination
of raw petroleum coke, which is in turn a refining by-product.

Coa l Ta r P itch (CTP )

Coal Tar Pitch is used in the electrolysis process to rejuvenate pre-baked and Soderberg anodes as
they get used up in the smelting process. Around 0.10.2 tonne of CTP is required to produce one
tonne of aluminium.

Alu min iu m Flu or ide

Aluminium fluoride is used as a flux to reduce bath resistivity in the smelting process. Around 0.2
0.03 tonne of aluminium fluoride required to produce one tonne of aluminium.

Fu el O il
Fuel oil is used both in alumina plants for conversion into aluminium and in power plants to
generate power.

S tea m Coa l
Steam coal is used both in the conversion of bauxite into alumina and for the generation of
electricity. Since coal-based plants account for nearly 100% of captive power generation capacity
by aluminium producers in India, coal is the principal input for coal-based captive thermal plants
set up by aluminium producers. The GoI owns most of the coal mines in India, through its
subsidiary, CIL. Users are provided with their coal under fuel supply agreements. The price and the
quantity entitled by users are established by the Standing Linkage Committee (Long-Term) of the
Ministry of Coal. These user allocations are reviewed on a quarterly basis by the Ministry of Coal.
Although aluminium producers do not experience major difficulties in obtaining a sufficient
amount of coal on reasonable terms in the past, the shortage of coal has resulted in the Ministry of
Coal reducing entitlements under various supply agreements.

An thr a cite Cok e

Anthracite coke is used for the manufacture of carbon blocks, which are used as lining in
aluminium blast furnaces.

F I NA N C IA L P E R F O R MA N C E
As discussed earlier, production costs for Indian aluminium manufacturers are among the lowest in
the world. Bauxite mining costs are lower in the country by global comparison because of the
abundance of bauxite reserves, the favourable location of such reserves, and the availability of
www.imacs.in

72

Industry Comment

Aluminium

cheap labour. Moreover, domestic producers rely on lower-cost captive sources of power to meet
almost all of their electricity requirements. However, they primarily use coal and diesel in power
generation, the costs of which have risen substantially in recent years. This has resulted in
significant increase in energy costs, as energy consumption per unit of production has remained
stable. The table below details the operating and net margins of primary aluminium producers over
the last few years.
O per ati n g M a r gi ns a n d Re t ur n o n Ca pi t al E m pl oy e d ( RO CE) of Do mes ti c
Al umi ni u m P ro d uc ers
FY

2009

2010

2011

2012

2013

Sterlite Industries
SSL
Hindalco
NALCO
ROCE (Aluminium)

15.7%

12.4%

14.3%

5.1%

2.2%

28.4%
20.0%

25.3%
1.3%

25.2%
12.3%

20.2%
-0.3%

10.6%
-2.2%

Sterlite Industries
SSL
Hindalco
NALCO

14.2%

7.1%

7.2%

2.1%

0.9%

26.0%
34.0%

18.4%
2.0%

15.2%
21.0%

9.2%
-0.5%

3.3%
-3.0%

2014

PBIT Margins
5.6%
9.3%
6.0%

2.7%
-5.9%

During Q2FY2015, Hindalcos operating revenues from aluminium business increased 41.5% to Rs.
33.16 billion primarily because of stronger growth in prices. Higher growth in operating costs
resulted in an 104% increase in PBIT for aluminium business to Rs. 3.39 billion in Q1FY2015. PBIT
margins from aluminium business have improved substantially from 6.9% in Q3FY2014 to 10.2% in
Q1FY2015.
Yoy G ro w th i n R ev en ues fr om A l u mi ni u m B us i n es s
80%

NALCO

SSL

Hindalco

60%
40%
20%
0%
Q1FY10 Q3FY10 Q1FY11 Q3FY11 Q1FY12 Q3FY12 Q1FY13 Q3FY13 Q1FY14 Q3FY14 Q1FY15
-20%
-40%
-60%

www.imacs.in

73

Industry Comment

Aluminium

Other primary aluminium producers have generally improved performance in the aluminium
business during FY2015. Sterlites results are not comparable because of merger with Sesa Goa.
SSLs aluminium business was affected by availability of coal for captive power. Its EBITDA for the
quarter was higher mainly due to improved metal premium and rupee depreciation as compared
to corresponding previous period. Nalcos revenues from aluminium business increased 28% in
Q2FY2015 to Rs. 12.49 billion. It reported PBIT margins of 2.9%, representing the first quarterly
profit since Q4FY2013. PBIT margins improved to 7.6% in Q2FY2015.
PB IT Ma r gi ns
40%

SSL

Hindalco

NALCO

30%
20%
10%
0%
Q1FY10 Q3FY10 Q1FY11 Q3FY11 Q1FY12 Q3FY12 Q1FY13 Q3FY13 Q1FY14 Q3FY14 Q1FY15
-10%
-20%
-30%

O U T LO O K
With the expectation of moderation in growth in Indias industrial production and real GDP,
domestic demand for aluminium is likely to increase at an annual average growth rate of 3% over
the period 2014 to 2016. Consumption declined 6% in 2014 as growth was constrained by weak
economic activity, restrained investment, and muted demand in construction and machinery.
Demand is expected to increase 8-9% in 2015. Over the medium-term, the sectors that are likely to
drive the expected increase in aluminium demand include power, construction, and automotives.
Moreover, India has relatively significant untapped demand potential for aluminium, as evident
from the countrys low per capita consumption of the metal. Also, with the uses of aluminium
increasing, given its versatility, the demand potential is likely to increase further.
Besides the likely increase in domestic demand, Indian producers of aluminium are also expected
to benefit from the long-term growth in international demand for the metal. On the supply side,
the emerging demand-supply scenario presents good prospects for domestic producers of
alumina and aluminium. India is already producing surplus alumina, which is being exported.
Inspite of an expected high increase in domestic aluminium production, this trend is likely to
continue with the establishment of greenfield export oriented alumina refineries. Given the likely
demand situation, almost all the domestic players have already drawn up major expansion plans.
www.imacs.in

74

Industry Comment

Aluminium

The scope for stepping up aluminium supplies in the Indian aluminium industry is significant, given
the abundance of bauxite reserves. Further, Indian manufacturers are among the lowest cost
producers of aluminium in the world. The country is thus placed favourably both in the alumina
and aluminium export markets.
In 2015, world aluminium prices are forecast to average around $1,900/tonne (t), representing an
average annual increase of 2-5%. Aluminium production growth is forecast to outpace
consumption and result in stocks increasing to 7.5 weeks of consumption in 2015. While high input
costs are likely to support higher prices in 2015, the abundance of spare capacity in China that can
respond quickly to higher prices will moderate any price recovery. Most of the growth in
aluminium consumption will come from emerging economies; while OECD economies are
experiencing moderate economic recoveries their aluminium consumption is still expected to
remain below pre-2008/09 levels. Despite recent production cuts, new smelter capacity against the
backdrop of weak demand could cause prices to remain depressed. While the US, China and India
are expected to drive aluminium demand in 2015, consumption in Europe is forecast to stagnate.
Production curtailments announced in 2013 are expected to have a more noticeable effect in 201415 with the loss of a full years production. However, this will only partially offset relatively strong
growth in Chinese production and new onstream capacity in the Middle East. The world, excluding
China, could continue to be in short supply due to shut downs, production curtailments and strong
demand in South America and North America.

www.imacs.in

75

Industry Comment

Aluminium

Intellectual Property Rights

The Intellectual Property Rights of this document vest entirely with ICRA Management
Consulting Services Limited (IMaCS). None of the information contained herein may be copied,
otherwise reproduced, repackaged, further transmitted, disseminated, redistributed, or resold,
or stored for subsequent use for any purpose, in whole or in part, in any form or manner or by
means whatsoever, by any entity without IMaCS prior written permission. Media may, however,
quote from this publication with due acknowledgement to IMaCS.
Copyright, ICRA Management Consulting Services Limited,
1105, 11th Floor, Kailash Building, 26 Kasturba Gandhi Marg, New Delhi 110 001

www.imacs.in

76