Capacity expansion by planned projects to treble production to 4.4 mt.
The aluminium industry in India may be moving towards overcapacity, since supply is likely to grow in excess of demand going forward. Considering that all aluminium projects would begin commercial production with expanded capacity as planned, there could be at least two million tonnes of additional capacity for exports by 2013.
“India’s aluminium production will more than treble to 4.4 million tonnes by mid-2012 with new capacities coming on stream, along with requisite captive power generation capacities,” stated a Fitch Ratings report recently.
Vedanta, Hindalco and Nalco together produced 1.5 million tonnes of the metal for the year ended 31 March 2009, a growth of 9 per cent year on year. Though higher cost capacities were shut down (in Vedanta’s subsidiaries Balco, Malco and Vedanta Aluminium) to the extent of 0.14 million tonnes, additional capacities from Vedanta Aluminium Ltd in Orissa, along with incremental capacity expansions at Nalco and Hindalco compensated for the loss. For eight months between April and November 2009, total aluminium produced was 0.98 million tonnes, a rise of 16.6 per cent over the corresponding period in the previous year.
“Although demand outlook for aluminium is likely to grow in line with the economy, supply is estimated to grow far in excess of demand, resulting in overcapacity in the domestic market over 2011-2013,” the report added. Large power and housing projects, which use aluminium extensively, depend largely on growth in economy and, thus, spur consumption of the metal.
According to an Icra report, “With sharp increase in capacity over 2010-13, India will start massive export of aluminium. The country could by 2013 be an annual exporter of 2 million tonnes of the metal, assuming the planned capacity expansions become operational as currently envisaged.” It added that the current demand-supply situation for aluminium was largely balanced with consumption in line with existing production, and a relatively small volume of exports.
India’s per capita consumption of aluminium is 1 kg as against 30 kg in the developed world, it stated in the report. “The industry is exploring new application areas and untapped demand potential, which may result in greater preference for aluminium in the future,” Icra added.
The expansion projects are subject to execution risk given their scale, greenfield nature, and regulatory risks with regard to mining approvals. These could delay some of the projects, or postpone indefinitely. However, the risks are partly offset by the fact that the new capacity would have low, globally competitive costs once operational. The surplus production would be exported.
Source : Business Standard