Will India Be The Next China In The Aluminum Market? – Live From Harbor's Outlook Conference

Will India be the next China?

This is a question we have touched on before, and one that spurs a lot of interest lately. With talk of whether China will experience a soft landing or a hard landing after all its growth while India’s quickly multiplying population gobbles up copper, iron ore and aluminum there are a number of reasons India could overtake China.

After all, having a democracy and the potential of “adding 2.7 billion consumers to the global marketplace (as put by Greg Wittbecker, Alcoa’s VP of materials management at Harbor Aluminum’s conference) is a good thing for aluminum producers in India and worldwide, right?

Not so fast, Wittbecker argues.

Granted, India does have positive growth in aluminum demand across all sectors (9 percent per year through 2020), and ever more of their population is rising to the middle class. As Wittbecker mentioned, the economy is turning away from services and toward industry, fixed asset investment is moving from 20 percent to 35 percent, India’s trade with China has grown 50 percent a year since 2002, and public sector debt is declining.

And India has access to very cost-competitive bauxite, Wittbecker said, as well as access to low-cost coal based on the government-driven current pricing structure. These have been the main drivers behind the growth strategy of India’s “Big Three producers — Nalco, Hindalco, and Vedanta to put multiple projects online between now and 2016, resulting in millions of tons of additional smelter capacity.

But two terms from the previous paragraph is where the hitch lies coal and government. It all comes down to energy in this case, both power production and bureaucratic agility, which India sorely lacks.

In terms of coal, Wittbecker stressed that India has a massive systemic problem with mining enough coal to meet its demand needs. Importing the bulk of the country’s supply is not the sustainable solution. Because of this, many of the new smelter projects have been put on hold.

The double-edged sword here is that India’s democratic government produces 87 percent of the country’s coal, and as MetalMiner contributor TC Malhotra has written, there are many ministries who operate independently and don’t necessarily communicate, and individual Indian states have differing exporting rules. Not to mention the environment minister beginning to crack down more and more¦

(To add insult to injury, a Maoist militia group clustered around the northeast, deemed the “Naxalite terrorists by Wittbecker, poses a threat to mining operations, as they vehemently oppose any industrialization further posts on this later.)

Ultimately, however, it doesn’t look that Indian aluminum producers’ very assertive play to up smelter capacity looks realistic, given the power needs they have and the power needs their coal mining situation cannot assuage.

If India can get this figured out and also how to get their democracy of 1 billion people to move faster and better –maybe they can get a leg up on China.

But perhaps we shouldn’t hold our breath.

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–Taras Berezowsky

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