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March 19, 2001 Aluminium Sector Update – March 2001 Aluminium production on a slow growth track Aluminium production grew by 2.9% in January 2001 as against a growth of 10.4% during January 2000. The cumulative production during April 2000-January 2001 recorded a growth of just 5.8% compared to a growth of 14.8% in the same period last year. This was on account of subdued production in most of the months between April 2000 and January 2001. The main reason for slowing down of aluminium production growth is the decrease in demand from the automobile industry. Table 1: Production (in tonnes) Production Jan-01 Jan-00 % Change Apr- Jan 2001 Apr- Jan 2000 % Change Aluminium 56860 55237 2.9 541966 512371 5.8 Source: Industry Chart 1: Aluminium Production Source: Industry Aluminium prices likely to drop The Indian companies are likely to increase prices in the domestic markets only if there is an increase in demand. Following a slowdown in the US, the aluminium prices are likely to come down. Chart 2: Aluminium Prices (Ingot prices in Mumbai market) Source: Industry Till the end of December 2000, the aluminium prices were fluctuating between $1,450-1,550 levels. There were sharp fluctuations in the international aluminium prices too. The year 2001 started on a bullish note with the prices rising past $1,700/tonne. However in February, the prices have dropped sharply to the levels of $1,550/tonne. Pechiney, a global aluminium major has already projected an average price of $1,600/tonne for aluminium in 2001. Chart 3: LME prices and inventory Source: Industry Impact of the Union Budget The overall impact of the budget on the aluminium sector was neutral. The major events of the budget were No changes in basic rate of customs or excise duties. No significant provision has been made for the industry. Removal of surcharge on import duty would reduce effective import duties marginally. We do not expect any significant impact on the domestic prices as they are well below the landed cost of metal and aluminum prices have been quite firm in global markets. On the direct taxes side, removal of corporate tax surcharge and reduction in dividend tax would positively impact mainly Hindalco. Nalco with its massive capex plans would anyway have lower effective tax rates. For detailed analysis of the budget click here. Major news The Union Government has sold 51% of the equity in Bharat Aluminium Company (Balco) to Sterlite for a whopping Rs 5515mn. The Government will retain the remaining 49% for a period of 3-4 years. Balco’s Korba Plant was forced to shut down operations after the company’s 7000 odd workers went on a sudden strike, protesting against the sale of equity to Sterlite. Alcoa has signed a contract to sell its 50 percent stake in the Stade, Germany, refinery and expects to close the deal sometime in March. Alcoa and Toronto-based Genstar Capital Corp. have signed a letter of intent for Alcoa to acquire Gentek Holdings Inc. of Cleveland and its Gentek Building Products subsidiaries. Alcoa has already completed the sale of its 204,000 annual metric tonne Longview, Washington aluminum smelter to Michigan Avenue Partners.   Sangeetha Subramanian

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