Key
drivers
International aluminum
prices : The global over supply situation in the aluminum industry
has resulted in a sharp drop in aluminum prices in the last three
years. Average prices are down 32% from the peak levels of
September 1997. As the Indian aluminum industry faces threat from
imports, only an improvement in international demand-supply
situation with a resultant increase in aluminum prices will help
domestic players improve their sales realization.
Growth in industrial
production / user industries : The demand for aluminum boards is
dependent upon growth in end user segments like power, consumer
durables, automobiles, packaging, etc. The electrical sector
constitutes 36% of the aluminum demand and therefore demand for
aluminum is dependent on the overall growth in the economy,
especially infrastructure spending.
Power Availability:
Production of aluminum is extremely power intensive. On an average,
Indian smelters consume 15,000-16,500 KWH per ton of aluminum as
against 14,000-14,500 KWH per ton consumed by global smelters.
Nalco is the most efficient producer in terms of power consumption
with a consumption of 15,840 KWH per ton. On the other hand, power
consumption of Hindalco is 16,503 KWH per ton of aluminum.
Downstream as well as recycling producers consume only
1/10th of the power consumed by integrated producers.
Thus availability of continuous and inexpensive power is critical
to sector fortunes.
Duty structure: In
March 1993, the basic import duty on primary aluminum was 20% while
that of semi fabricated products was pegged at 70%. However,
subsequently import duty on primary aluminum was increased to 25%
whereas that on semi fabricated products was reduced to 25%.
Primary aluminum is the main raw material in the manufacture of
semi fabricated products. Hence, the duty increase affected the
downstream producers in two ways (a) it increased the raw material
cost and (b) it increased threat of cheap imports, especially from
south east Asian countries. This adversely affected the fortunes
downstream manufacturers.
