Slight Recovery in Indian Aluminum Demand Expected This Year

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It may have plateaued in the last three years, even hitting a minor air pocket in the last year, but analysts are hopeful that India’s aluminum demand will post a growth.

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Demand for aluminum in India is tied into the growth in infrastructure, power, consumer durables and automobiles. The country’s demand for aluminum has, on an average, remained stable through the last decade or so, largely because of its dependence on the power sector. Those following the aluminum sector are hopeful that demand would grow five times past the current level by 2030.

Crisil Research (a division of ratings and research agency Credit Rating Information Services of India CRISILl), Director Ajay Srinivasan has forecast that both the power and automobile segments will propel a slight recovery in domestic aluminum demand in 2014-15, though the profitability of domestic players will remain under pressure due to high input costs.

He explained that between 2008-09 and 2013-14, demand for the metal, which grew at a 7.9 percent Compounded Annual Growth Rate (CAGR), was powered by about 9 percent annual growth in demand from the power sector.

About 40 percent of India’s demand for the metal comes from the power sector, which, coupled with automobiles and construction, accounts for about 80 percent of domestic aluminum consumption.

The slight hiccup last fiscal was because of a reduction in demand for power cables and conductors. This, coupled with negative demand growth in automotive had led to an approximately 3 percent decline in domestic aluminum demand.

As reported by MetalMiner in March, a multitude of factors were responsible for depressed auto sales. India has an abundant supply of quality bauxite. Coupled with low labor costs, this has made the country known globally as a low cost producer of primary aluminum. Global primary aluminim production in 2012 was 45.2 million tons, with China accounting for 19.8 million tons. For the last three years or so, production of primary aluminum in India had stagnated at the 1.7 million ton mark.

Writing in The Hindu, Srinivasan said last year’s lower aluminum demand was compounded by lower production as output from key producers such as NALCO took a hit from a shortage of coal and unavailability of power. He added that domestic aluminum demand was expected to recover slightly and grow by 2-3 percent in 2014-15, tailing growth trends in sectors such as automobiles and power.

CRISIL Research has added one rider, though – the relief on the demand front will not extend to utilization rates. Operating rates of Indian smelters will decline from 2013-14 levels, it said, due to significant capacity additions on the anvil.

“We foresee the global demand-supply situation stabilizing in 2014 as players are expected to undertake production cuts across regions due to rising input costs and low prices. Cumulatively, 1.2-1.5 million tons of capacity are expected to shut down in 2014, over and above the nearly 1.6 million tons of global production cuts between 2011 and 2013,” wrote Srinivasan in The Hindu.

In the long-term, domestic aluminum players will have to aim at increasing on exports to maintain the utilization rates, but given the global market, this could be a challenge.

Recently, Hon. General Secretary of Aluminum Association Of India (AAI), the largest aluminum sector association, Prof K.S.S. Murthy said new markets for aluminum were to be found in consumer durables, railway wagons and rail coaches, aviation, solar panels and electronics.

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