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Page 2 of 20
Table of
content
1. Introduction on Aluminium
2. Overview
3. Global Aluminium Industry
1. Global Production
2. Global Consumption
3. Top Global Companies in Primary Aluminium
4. Indian Aluminium Industry
1. History
2. Features of Indian Aluminium Industry
3. Primary Aluminium Production
4. Consumption
5. Analysis of Indian Primary Aluminium Market
1. Type of Market
2. Profile of Key Players
3. Reasons of Indian Aluminium Industry being an
Oligopoly
4. Porters Competitive Framework
6. Pricing of Primary Aluminium
7. Conclusion
1. Challenges Ahead
2. Outlook
8. References
Page 3 of 20
Introduction
Global society faces a great challenge to shift human economic
activity and lifestyles on to a sustainable path in the 21st century, including
meeting threats from climate change. The story of the aluminium industry
over the decades ahead must be one of how it is part of the solution for a
sustainable future. The metal aluminium has a vital role to play in
successfully addressing this sustainability challenge.
Aluminium is the third most abundant element in the earth's crust and
constitutes
7.3% by mass. The existence of was first established in 1808 but there
were a few historical mentions of aluminium use. The aluminium metal was
extracted from the ore after many years of research. It was possible only in
the year 1854 to develop a viable commercial production process of
aluminium. Primary aluminium is the hot molten metal that is produced in
the smelter. Secondary aluminium is the finished goods made from
primary aluminium.
Why Aluminium?
Strength
Pure aluminium is soft enough to carve but mixed with small amounts of
other metal to form alloys, it can provide the strength of steel, with only
one-third of the weight.
Durability
Flexibility
Its combination of properties ensure aluminium and its alloys can be
easily shaped by any of the main industrial metalworking processes - rolling,
extrusion, forging and casting.
Impermeability
Lightweight
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Aluminium used in transport reducing the weight of the vehicles,
hence in providing fuel efficiency, reducing energy consumption and
greenhouse gas emissions.
Page 5 of 20
Corrosion-resistant
Recyclable
Once made, aluminium can be recycled again and again, using only a
very small fraction of the energy required to make "new" metal.
Recycling saves about 95% of the energy required for primary
production.
Other
Overview
Aluminium is the second most important metal after steel. The Indian
economy is growing at a consistent rate of about 8% and due to this there
is an increase in the domestic demand for the metal which is most widely
used in various sectors for various purposes.
Objective
Global Production
Page 7 of 20
Primary aluminium production is concentrated in relatively few
countries. China
alone produced 26 percent of the world total in 2006.The top five producers
—China, Russia, Canada, the United States, and Australia—accounted for 59
percent of world output that year. Production is found where energy is
cheap because making aluminium uses large quantities of electricity. The
world’s largest aluminium smelter, now being planned for construction in
Dubai, will have its own 2,600-megawatt power plant.
The ore of the metal i.e. bauxite generally occurs in the tropical and
sub tropical areas of earth and is present in almost all continents except
Antarctica with the estimated deposits of 65 billion tons. The major
producers of primary aluminium in the world are
Page 8 of 20
(The above chart shows the Global Aluminium Production from 1997-
2007)
1. Transportation
2. Construction
3. Packaging
4. Electrical
5. Engineering
6. Consumer Durables
% age of consumption
4%
9%
Transportati
29
9% on
%
Constructio
n Packaging
12% Electrical
Engineering
Consumer Durables
15% Others
22%
Page 11 of 20
World's Top Ten Primary Aluminium Consuming Countries
(in KT), 2001-06
Country 2001 2002 2003 2004 2005 2006
China 3492 4115 5178 6043 7119 8648
USA 5230 5509 5667 5800 6114 6150
Japan 2014 2010 2235 2319 2276 2323
Germany 1580 1690 1916 1795 1759 1823
S. Korea 850 921 982 1118 1201 1153
India 589 604 798 861 958 1080
Russia 786 990 803 1020 1020 1047
Italy 756 851 956 987 977 1021
Canada 743 747 736 755 801 846
Brazil 553 578 589 651 759 773
Source: ABARE
1. ALCOA
2. RUSAL
3. ALCAN
4. HYDRO
5. BHP Billiton
6. CHALCO
7. DUBALCO
History
% age of 36%
11%
consumption
4
%
6% 8%
22%
13%
Transportation Construction Packaging
Electrical Engineering
Consumer Durables
Others
(The sector wise Indian consumption pattern of Aluminium)
There are only 3 players in the aluminium market in India with total
production of
1250 KT in 2008. The entry into market is possible but not easy due to
the heavy initial capital that is required to setup the plant. As aluminium
is a homogenous product there is no price war between the three players
and these firms are price takers. Though the company sells the product at
price which is decided by them, the firms mostly go by the price on the
London Metal Exchange (LME). In the Indian aluminium industry all the
firms are price takers and there is no clear leader as all the 3 firms have
almost equal market share. The price is decided by demand and supply in
the commodity market.
Capacity Market
(Ktpa) Share
HINDALCO 47 39
Sterlite 1
38 %
32
5 %
Industries
NALCO 34 29%
5
Market
Share
NALCO
29% HINDAL
CO
39
Sterlite %
Industrie
s
32
%
(Note: Production capacity is taken to calculate the market share as each firm are
producing and selling to the fullest of their capacity)
The Herfindahl Index (H) for Indian Primary Aluminium Industry is 3386.
This shows that the Indian Primary aluminium market is evenly distributed
among the three players.
• Economies of Scale.
• Time to setup.
It requires around 3 years to setup a plant of the size mentioned in
the above example. The new player would require about 3 years to start
manufacture primary aluminium and the market demand supply equation
can change by the time the firm starts manufacturing.
• Scarcity of power.
• Government Factor.
• Land.
• Geographical factors.
The bauxite ore is abundant only in the states like Orissa and
hence the firms entering into the market need to setup the plant in
these states.
2. Threat of Entry.
Though there are lot of barriers to enter into the aluminium market,
other major metal players who are not into Aluminium business can enter
seeing the rate of growth of the aluminium market.
Even though there are few players in the primary aluminium industry
the price is determined by the demand and supply and the buyer has an
upper hand and the bargaining power of the buyer is significant.
All the three players have almost equal market share in India. Looking
at the global demand growth driven by china the players are eyeing the
growing global market and hence increasing the production capacity.
The other factors for the variation in the price of aluminium in the
past two years are price of crude oil which increased from $70 per barrel to
over $100 a barrel and fluctuation of INR. The rising crude prices resulted in
higher prices for its derivatives. The soaring crude also had a cascading
effect in terms of higher transportation costs and higher prices of alternate
energy sources like coal. All these led to a significant cost push for the
aluminium industry. The depreciating dollar resulted in a sharp fall in
domestic aluminium realizations
as the prices are dollar denominated. Continuing with the stated policy of
import duty reduction, the government cut the customs duty on
aluminium. The effective import duty for aluminium declined from 8.1% to
5.7%. As a result of these macro economic factors, average aluminium
realisations for FY08 declined sharply by11% as compared with FY07
realisations.
Conclusion
Challenges Ahead
References
1. www.commoditywatch.com
2. www.metalworld.co.in
3. www.equity mast er.com
4. www.crnindia.com
5. www.nalco.c om
6. www.hindalco.com
7. www.veda ntaresources .com
8. www.indiainfoline.c om
9. London Metal Exchange Website
10. International aluminium Institute website.
11. Annual Reports of HINDALCO, NALCO and Vedanta (Sterlite Industries).