India's Nalco Cuts Product Prices – What Does It Mean For the Steel Market?

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TC Malhotra contributes to MetalMiner from New Delhi.

India’s government controlled National Aluminum Company Limited (NALCO) has decided to offer a discount of Rs 2,000 ($37.90) per metric ton across all products in the domestic market.

Nalco, which is India’s third-largest producer of aluminum, raised prices by Rs 2,500 ($48) a metric ton earlier this month. Wire service Reuters has quoted Ansuman Das, commercial director at Nalco, as saying that the move was prompted by changes in LME rates. The company has not revised the basic prices, but has only offered a discount effective Friday until Dec. 31, 2011, he was quoted as saying.

Reports suggest that aluminum prices on the LME have fallen 23 percent from their April 2011 peak to around $2,140/ton. The rally was triggered by the excess liquidity injected into the markets by the US Federal Reserve as part of its QE2 (quantitative easing) program in November 2011.

Despite the sharp correction, there is little scope for a major rise given the uncertainty in markets across the globe.

The Aluminum Association of India (AAI) said last month that aluminum prices are expected to remain stable at current levels without any steep increases in the coming months. According to AAI, prices are expected to hover between $2,200 and $2,500 in the coming months.

Incorporated in 1981 as a public sector enterprise of the Government of India, Nalco is Asia’s largest integrated aluminum complex, encompassing bauxite mining, alumina refining, aluminium smelting and casting, power generation, rail and port operations. Commissioned during 1985-87, Nalco has emerged to be a star performer in production, export of alumina and aluminium.

Resources of bauxite, the raw material for aluminum, are only located in seven areas: Western and Central Africa (mostly Guinea), South America (Brazil, Venezuela, Suriname), the Caribbean (Jamaica), Australia and Southern Asia (India), China, the Mediterranean (Greece, Turkey) and the Urals (Russia).

India is considered to be the fifth-largest producer of aluminum in the world. The country has a capacity to produce more than 2.7 million tons of aluminum per year, making up about 5 percent of the total aluminum production on the globe. India boasts of a massive quantity of bauxite reserves — about 3 billion tons.

Here in India, we’ve witnessed a growing demand for aluminum in the domestic market, accounting for enviable growth in the sector. Today, aluminum production in the country is outpacing the demand.

Actually, the per capita consumption of aluminum metal in India is less than 1 kg, whereas the same is estimated at 25 to 30 kgs in US & Europe, 15 kgs in Japan, 10 kgs in Taiwan and 3 kgs in China. Despite the lower per capita demand for the metal in India, there is heavy demand for aluminum in the domestic market on account of the metal being used in large quantities across a number of industries.

Of the total volume required by the domestic market, the power industry makes use of about 44 percent and the consumer durables and transportation industries consume about 10-12 percent, while the construction and packaging sectors buy about 17 percent.

The AAI estimates that the domestic aluminum sector will see an investment of Rs 1.2 trillion ($23 billion) through 2015, as aluminum manufacturers go in for expansion of capacity.

–TC Malhotra

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