India Hoping Aluminum Demand Bounces Back

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It may have plateaued in the last three years, but analysts are hoping that India’s aluminum demand will grow in the current fiscal year.

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Demand for aluminum in India is tied into growth in infrastructure, power facilities, 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 over present levels by 2030.

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

Srinivasan explained that between 2008-09 and 2013-14, demand for aluminum, which grew at a 7.9 percent compounded annual growth rate (CAGR) during this period, 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 Indian aluminum consumption.

The slight hiccup last fiscal year was because of a reduction in demand for power cables and conductors. This, coupled with negative demand growth in automotive (mainly cars, sport utility vehicles, and commercial vehicles) 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. This and low-cost labor has made the country known globally as a low cost producer of primary aluminum.

Global primary aluminum 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 was hit by a shortage of coal and unavailability of electric power. He added that domestic aluminum demand was expected to recover slightly and grow by 2-3 percent in 2014-15, trailing growth trends the automotive and power sectors.

CRISIL Research has added one caveal, 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 long term domestic aluminum players will have to aim at increasing exports to maintain the utilization rates, but given the global market, this could be a challenge.

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

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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