Aluminium Industry – Challenges And Opportunities

By Dr. Pratapaditya Mishra Visiting Professor, Utkal University and Formerly Additional Director General Aluminium Association of India and Binay Kumar Mahapatra General Manager (International Marketing) National Aluminium Company (NALCO) Odisha

Aluminium is the third most abundant element in Earth’s crust, after oxygen and silicon, 8.13% by mass of the total crust. Due to Aluminium’s high affinity to combine with oxygen, it is not found in nature in its elemental state, but only in combined forms such as oxides or silicates. The history of the industrial production of aluminium began in 1886 when the Hall-Heroult electrolytic production system was perfected, named after its two inventors. It is a polyvalent material, versatile in terms of its performance and possible technologies, suitable for use in practically all fields of application including its alloys. Some of its unique properties like lightweight, recyclability, conductivity, non-corrosiveness and durability have helped establish it as a metal of choice for various applications across various segments of the manufacturing sector.

Being lighter (3 times lighter than steel), it aids in fuel efficiency making it an efficient choice for automotive, defence and aviation. There are many differential benefits for applications in the auto sector which are linked to Aluminium’s mechanical properties like light weighting, resistance to impact, resistance to corrosion, design flexibility, production efficiency and efficiency of the production process. Of course, the differential benefits have not been exploited fully so far. The most important impact of innovation in Aluminium will be on the social system like lessening energy consumption and protecting environmental pollution. The second impact will be on the end users, who will prefer safer means of transport with lower running cost. Thirdly, the constructors of means of transport will manufacture many innovative products to get wide-reaching commercial success. The producers will like to go for many value additions to Aluminium for its better and effective usages. The construction industry relies on a variety of aluminium alloys in the manufacture of products ranging from exterior siding to structural components due to its durability and non-corrosive properties. Its ability to conduct heat and electricity also makes aluminium a popular choice in the electrical and electronics industries. Coupled with infinitely recyclable properties, aluminium is a convenient option for packaging industry such as beverage cans and foils. Aluminium is also called ‘the Metal of Future’ due to the above properties.

Aluminium is the second most used metal in the world after steel with an annual consumption of 88 Million Tonnes (including scrap). It is also the fastest growing metal which has grown by nearly 20 times in the last sixty years (compared to 6 to 7 times for other metals). World production and consumption figures for Metallurgical grade alumina by major regions are as given below:

(figures in ‘000MT)

Region	Production
	2015	2016	2017	2018	2019
North America	5475	3300	2384	2171	2275
Asia excl China	8617	10075	11758	12187	13264
Africa	0	0	0	180	401
Europe	8790	8901	9058	9074	8883
Australasia	19854	20419	20336	19879	20009
South America	12715	12128	12097	9842	10717
China	57156	60243	68090	71530	67985
Total Production	112607	115067	123723	124862	123534
World Consumption	111363	115127	123880	124723	123140
World Balance	(+)1245	(-)60	(-)156	(+)140	(+)394

Source: CRU Monitor – Alumina, May’20

Since 2000, there has been a gradual shift of primary aluminium production centres from west to east largely from North America to China, India and Middle East. China dominates production as well as consumption of aluminium accounting for nearly half of the global production and consumption. China’s per capita consumption of 24 kg compared to world average of 11 kg is largely driven by huge investments in infrastructure and construction and government support through specific initiatives undertaken by the Chinese government. China, Russia, Canada, India, UAE, Australia and Norway together account for 80% of the global primary aluminium production.

Global aluminium industry structure

The aluminium industry comprises two basic segments: upstream, and downstream. The upstream segment produces primary or “unwrought” aluminium from smelting of calcined alumina which is produced from bauxite. Approximately four (4) kilogrammes of bauxite is required to produce two (2) kilogrammes of alumina and one (1) kilogramme of aluminium. Primary aluminium is the starting block for aluminium products and is mainly in the form of ingots and billets.

The processing of aluminium into semi-finished aluminium goods such as rods, bars, rolled products, castings, forgings and extrusions comprises the downstream segment of the industry. These aluminium products can be manufactured using primary or secondary aluminium, or a combination of both depending on the specification of the final product. Aluminium production from recycled scrap is secondary production. Major global players in the primary aluminium industry are Hongqiao, Rusal, Rio Tinto, Shandong, Chalco and Alcoa.

Extrusion products are mainly used in building and construction sector (B&C) in the form of windows, doors, curtain walls and formwork, bathroom and kitchen applications etc. B&C accounts for almost 62% of extrusion consumption. Automotive sector also uses extrusion products for light weighting of vehicles in the form of extruded tubes, multi-hole profiles, door beam, bumper system etc. Due to low technological and capital intensity, the extrusion product market is mostly fragmented with a large number of small to medium size players and a few larger players. China is the biggest consumer of extrusion products accounting for almost 63% of global consumption. Zhongwang Holdings Limited (China) is a leader in extrusions. Sapa (Hydro extruded solutions) is one of the largest extruders outside of China accounting for over 15% of production. Other bigger players like Hydro, Aleris and Alcoa are present across segments like industrial, construction, auto and aviation. There are also few niche players like Alu Menziken and Universal Alloy which operate in only high margin segments of aero and automotive.

The aluminium flat rolled products (FRP) include products like sheets/plates for aerospace and civil aviation, auto body sheets, can body stick, building sheet, litho sheets etc. FRPs have a wide range of applications in transportation/automotive, building and construction, beverage cans and packaging. FRP’s are the second-largest wrought aluminium product category in the world after extrusions. Novelis (a subsidiary of Hindalco Industries ltd.) is an industry leader in rolled aluminium production and aluminium recycling. Aleris – a global leader in the manufacture and sale of aluminium rolled products – serves a variety of end-use industries, including aerospace, automotive, defence, building and construction, transportation, packaging, and consumer goods. Constellium is a key European rolling and recycling player which produces a wide variety of products for Packaging, Automotive and customized industrial coil and sheet solutions.

Aluminium: Mines to Finished Products

Global production of primary aluminium rose from 32.7 million tons (MT) in 2005 to 63.1 MT in 2019, with a CAGR of 6.66%. Primary aluminium production is concentrated in relatively few countries. The top six producers in 2019 are China (35.1 MT), Russia (3.7 MT), India (3.3 MT), Canada (3.2 MT), UAE (2.8 MT), Australia (1.5 MT).

Global consumption of primary aluminium increased from 32.6 MT in 2005 to 64.2 MT in 2019 with a CAGR of 6.92%. The top six primary aluminium consumers in 2019 are China (35.76 MT), USA (5.2 MT), Germany (2.1 MT), India (2.1 MT), Japan (1.95 MT), South Korea (1.28 MT). Asia has shown tremendous growth in consumption of primary aluminium in the last decade, driven largely by the increased industrial consumption especially in China and India. Globally, newer packaging applications and increased aluminium usage in automobiles and electronics is expected to keep the demand growth ever increasing for aluminium.

Global production and consumption figures for major regions are given below:

(Figures in ‘000MT)

Region	Production
	2015	2016	2017	2018	2019
North America	4456	4034	3960	3821	3965
Europe	7905	8139	8125	8192	8167
Asia (excl. China)	26329	26933	27218	27698	28016
Africa	1676	1697	1702	1695	1679
Australasia	1998	1977	1822	1925	1925
Central & South America	1316	1356	1379	1166	1096
China	30752	32069	36262	36222	35101
Global Production	57081	59002	63480	63920	63117
Global Consumption	56467	59850	63229	65225	64172
Global Balance	(+)613	(-)848	(+)251	(-)1305	(-)1055

Source: CRU Monitor – Aluminium (May’20)

Globally, auto & transport account for 23% of aluminium consumption, followed by construction (22%), packaging (13%), electrical (12%), machinery and equipment (8.5%), consumer durables (4.5%), and other segments (4%).

Aluminium as a Strategic Sector

A country’s over-reliance on foreign import for essential strategic metals may be detrimental towards the objective of national security. A strong economic power should be able to produce enough high quality metal to ensure self-reliance in its defence and critical infrastructure needs in order to avoid global volatility in supply and prices.

Many industrialized nations have included non-ferrous metals/ aluminum industry as a strategic sector in their industrial strategy/plan.

• China in 2006 identified aluminium sector amongst the nine ‘pillar’ industries where the government was supposed to play a predominant role. The Chinese 12th five-year plan also included non-ferrous metals as a part of key industries that will be encouraged to consolidate and form large enterprises.
• USA has recognized aluminium as a strategic metal for Defence, National Security and Critical Infrastructure.
• Russia identifies Aluminium as a strategic metal for defence. The Ministry of Industry and Trade (MIT) has approved a development strategy for non-ferrous industry up to 2030.
• South Korea’s heavy industry drive in 1973 identified six strategic sectors including non-ferrous metals where the government provided benefits like low interest rates, reduced tax liability etc. to drive the growth of specific sectors.
• European Union has drafted a strategic vision for non-ferrous metals titled, “Non-ferrous Metals Manufacturing: Vision for 2050 & Actions Needed” (2017). It defines, “(a) a long-term vision for the non-ferrous metals manufacturing industry, (b) proposes concrete actions for the industry, policymakers, and other stakeholders, to address the challenges faced by the sector (trade and competition, innovation, resources, business integrity and skills) on its path towards the vision.”
• Canada provides support to aluminium plants in Quebec province. Quebec Aluminium Development Plan (2015 – 2025) focuses on financial support for R&D, new projects, carbon footprint, and export incentives.
• Taiwan in 1982 also categorized Non-ferrous as a strategic sector where government provided preferential measures like low interest rate loans and technology and management assistance.
• Malaysia’s 2017 draft industry plan recognized metal as a focus sector with high potential for growth and identified policy interventions to support the industry.
• In Indonesia, pioneer sectors were expanded to include upstream metal in 2015. Benefits like tax holiday scheme, accelerated depreciation and amortization, compensation losses extended from 5 to10 years have been provided.
• Aluminium is a key sector for Dubai’s industrial growth and a part of Dubai and UAE’s Industrial strategy for 2030. As a part of the strategy, hosts of benefits are provided including low corporate tax, cheaper electricity costs and easy access to financing and capital.
• Here, we trace out some selected policy support initiatives that various national governments provide to their Aluminium Industry, as documented in USITC Report, 2017.

Impetus to growth of Non-Ferrous Metal Industry in India:

Globally, the growth of the non-ferrous metals industry has been closely associated with the economic growth activity due to widespread application of these metals in major spheres of economic activities including infrastructure sectors like construction, power, steel, and automotive. The demand for non-ferrous metals have grown at a steady pace with a CAGR of 2.8 per cent during 2013 to 2017 in line with global GDP growth of 3.4 per cent during the same period.

India is one of the fastest growing economies in the world. Strong domestic demand coupled with several reforms that the government has undertaken, augurs well to maintain the economic growth momentum going forward. As non-ferrous metals find widespread applications across the economy, the strong growth in GDP provides a tremendous opportunity for the development of the Indian non-ferrous metals industry in the future. A major push is expected to emerge from the government’s ‘Make in India’ initiative. Under this initiative, the government has identified 25 sectors such as Automotive, Power, Defence manufacturing, etc. which have extensive applications of various non-ferrous metals, and therefore, can provide a boost to the industry. Some of the key reforms undertaken by the government expected to strengthen India’s economic prospects in the future are:

Make in India: Aims to develop manufacturing capabilities that are among the best in India by facilitating investment fostering innovation, enhancing skills development and protecting intellectual property. The Government of India has set a target to increase the manufacturing sector’s contribution to GDP to 25 per cent by 2025 from the present level of 17 per cent. This initiative is expected to boost manufacturing growth in the country and enable sustainable and high economic growth. However, there are several key barriers can be addressed through changes in policy and infrastructure upgradation.

Smart Cities: It is an urban renewal programme by the Government of India with a mission to develop 100 such cities all over the country by making them citizen-friendly and sustainable. It intends to drive economic growth and improve the quality of life of people by providing adequate water supply, 24×7 electricity, sanitation, open spaces like parks, playground, variety of transport systems, sustainable environment and safety and security of the citizenry.

Skill India: Launched in 2015 with an aim to train over 40 crore people in India by 2022, this initiative’s idea is to enhance confidence, increase productivity and provide a direction to the Indian workforce so that they can contribute substantially towards the economic growth of the country.

Pradhan Mantri Awas Yojna: This housing scheme was divided into two components ‘Urban’ and ‘Rural’ to provide affordable housing to the urban and rural poor by 2022. It is expected to have a multiplier effect on the economy of the country in terms of government spending, employment generation, infrastructure development, etc.

24×7 Power for all: A joint initiative by Central and State Governments to provide power to households, commercial spaces, industries, agriculture and any energy-consuming entity. Under this initiative, the government has announced several Integrated Power Development Schemes to boost the transmission and distribution network, installation of solar power generation capacity under the Jawaharlal Nehru National Solar Mission (JNNSM), the Ujwal DISCOM Assurance Yojna (UDAY) to reduce the liabilities of power distribution companies.

Digital India: The main objective of this campaign is to improve the digital infrastructure of the country and empower it in the field of technology which can benefit in terms of efficiency to drive economic growth.

Start-up India: The government launched this campaign with an aim to promote entrepreneurs in the country that can drive sustainable economic growth and increase employment opportunities in the country.

Goods and Services Tax (GST): It has been introduced to do away with the cascading effect of multiple layers of taxes like VAT, service tax, excise, etc. with an aim to easily do business in the country. This reform is expected to further help India in the long run in terms of improving ease of doing business, bolstering investor sentiments and luring more foreign investment.

Atmanirbhar Bharat Abhiyaan (Self-Reliant India): Government of India announced this scheme in May’20 through a special economic package, valued at INR 20 lakh crore (2 trillion Indian Rupees), is equivalent to approximately 10% of India’s GDP. The package is aimed at providing the much needed financial & policy support to the cottage industry and MSMEs in India. Under this package, GoI has also announced a host of bold reforms to attract investment, enhance the ease of doing business and strengthen the Make in India initiative. The economic package will focus on land, labour, liquidity and laws. The package has been devised to give a thrust to local manufacturing, local markets and local supply-chains-thus propagating Hon’ble PM’s vision of ‘vocal for local’. The entire scheme focuses on providing impetus to the Make in India initiative and transforming local Indian companies into global.

Enhancing Private Investments in the Mineral Sector: Joint Auction of Bauxite and Coal mineral blocks to enhance Aluminium Industry’s competitiveness will be introduced to help Aluminium industry reduce electricity costs.

Prospects of Aluminium Industry in India:

During 2011-12 to 2017-18, the demand for Aluminium posted a CAGR of 5.4 per cent led by healthy growth recorded by the electrical and automotive sectors which constitutes 60-65 per cent of the total consumption of Aluminium. Primary Aluminium demand is generally met through domestic supply but there is considerable import of downstream products from China and the Middle East.

Significant capacity addition has taken place over the past five years due to implementation of various capacity addition plans by the major players. During 2011-12 to 2017-18, capacity has increased from 1.9 million tonnes per annum to 4.1 million tonnes per annum. As the capacity grew at a much faster rate vis-à-vis demand, export has risen at a CAGR of 30 per cent during the period that has transformed India from being a net importer to a net exporter of Aluminium.

India’s per capita consumption of aluminium stands too low (~ 2.5 kg) compared to China (24 kg) and world average (11kg) which promises rapid growth in demand in the country. The main primary aluminium consuming sectors, as of 2018, include electrical sector (38%), transport sector (21%), construction (10%), consumer durables (16%), machinery & equipment (5%), packaging (2%) and others (4%). Though the electrical sector is the biggest end user of primary aluminium in India, on the other hand, transportation is the main end user of primary aluminium globally, with the sector accounting for the consumption of 43 percent of the metal in Japan and 35 per cent of the metal in North America and West Europe. While the construction industry accounts for 18 per cent of the metal consumption in the US and 25 per cent of that in Japan, the industry makes up barely 10% of the metal consumption in India. The electrical and transport sector are the major consumers of aluminium in India (~60%). Import of Aluminium metal and its products constitute a substantial chunk of consumption in India. Aluminium in India is utilised in only 300 applications compared with over 3000 in developed countries, showing the need for leveraging the consumption opportunities of aluminium in the country.

Development of Aluminium industry segment in India

The Indian aluminium sector is primarily run by large integrated players such as National Aluminium Company (Nalco), Hindalco and Vedanta. Other producers of primary aluminium include Indian Aluminium (Indal), now merged with Hindalco, Madras Aluminium (Malco) and Bharat Aluminium (Balco) the erstwhile PSUs, which have been acquired by Sterlite Industries. Consequently, mainly there are only three primary metal producers in the sector namely Balco (Vedanta), National Aluminium Company (Nalco) and Hindalco (Aditya Birla Group).

Removal of price and distribution control in 1989, general reforms on licensing policy thereafter in 1991 and the subsequent economic policy reforms aimed at competitive growth of corporates have changed the outlook of the Indian aluminium industry.

The domestic aluminium majors are now keenly pursuing brownfield and greenfield expansion programmes along with commensurate captive power generation. The liberalization policy introduced by the Government of India had its impact on the Aluminium Industry too.

Characteristics and features of Indian Aluminium Industry

2. Highly concentrated industry with only three primary producers in the country.
3. Controlled by two private groups (Hindalco & Vedanta) and one public sector unit (NALCO).
4. Electricity, coal and furnace oil are primary energy inputs.
5. Bayer-Hall-Heroult technology mainly used by all producers.
6. All plants have their own captive power units for cheaper and un-interrupted power supply.
7. Plants have set internal target of 1-2% reduction in specific energy consumption in the next 5-8 years
8. Energy cost is 40% of manufacturing cost for metal and 30% for rolled products.
9. All the plants focus on Energy Management and have Energy Management Cells.

Bauxite

As per Indian Bureau of Mines data, India’s bauxite resources stand at 3480 Million tonnes; out of which 593 million tonnes are of reserves category (proven & probable) and balance 2887 million tonnes are yet to be fully explored. India occupies 7th place in the world in bauxite reserves. Out of over 3500 million tonnes of bauxite resources in the country, only 400 million tonnes have been under operating leases. Grant of mining lease, environmental clearance, land acquisition and forest clearance have been the major constraints in development of new mines.

Alumina:

Refining capacity installed in India:

Company	Refining Capacity (MT)	Location	Bauxite Source
NALCO	22,75,000	Damanjodi, Odisha	Panchpatmalli, Odisha
HINDALCO	30,00,000	Renukoot, UP Belgaum, Karnataka Muri, Jharkhand, Rayagada, Odisha	Amarkantak, MP. Richguda & Lohardaga, Bihar. Chandgarh, Maharashtra, Baphlimali Bauxite Mine, Rayagada & Kalahandi, Odisha
Vedanta Ltd.	18,00,000 2,00,000*	Lanjigarh, Odisha BALCO, Korba	Various domestic sources and imports
MALCO	85,000*	Mettur, Tamil Nadu	Shevroy Hills, Tamil Nadu
Total Capacity	73,60,000	As on March-2020

* Not operational as yet

Alumina production

(figures in MT)

COMPANY	2015-16	2016-17	2017-18	2018-19
NALCO	19,53,000	21,00,000	21,05,000	21,52,000
HINDALCO	23,00,000	27,00,000	29,00,000	29,00,000
VEDANTA	9,71,000	12,08,000	12,09,000	15,01,000
TOTAL	52,24,000	60,08,000	62,14,000	65,53,000

Source: Company websites

Aluminium:

Smelting capacity of Indian primary aluminium producers:

Company	Smelting Capacity	Location	Remarks
NALCO	4,60,000	Angul, Odisha
HINDALCO	13,20,000	Renukoot, UP Hirakud, Odisha Mahan, MP MALCO, TN	Renukoot : 345K MT Hirakud : 215K MT. Mahan, MP: 360K MT, Aditya, Odisha: 360K MT MALCO, Metur:40K MT(not in oprn)
BALCO	5,70,000	Korba, MP
VEDANTA	17,50,000	Jharsuguda, Odisha	Jharsuguda I : 500K MT capacity ; Jharsuguda II: 1250K MT capacity
Total	41,00,000

Total domestic production of aluminium metal during FY18-19 grew by 9.2% y-o-y from 3.384million tonnes in 2017-18 to 3.695million tonnes in 2018-19, on account of domestic aluminium producers ramping up output at new smelting assets. Domestic consumption of primary metal also showed a growth of (-) 1.7% y-o-y from 2.024 million tonnes in 2017-18 to 1.989 million tonnes in 2018-19. Total domestic consumption of aluminium metal including scrap showed a growth of 11.1% y-o-y from 3.621 million tonnes in 2017-18 to 4.023 million tonnes in 2018-19. This has been largely on account of increased off take by the electrical, transportation and construction sectors. Aluminium exports by Indian primary producers also registered 18.2% growth y-o-y from 1.724 million tonnes in 2017-18 to 2.038 million tonnes in 2018-19. Outside of China, India is expected to continue to be among the major hubs of primary production growth.

In the domestic market, with the Government’s increased thrust on infrastructure, it is expected that aluminium offtake from the electrical, building and construction sectors would pick up considerably. The Government’s initiatives such as “Make in India” scheme, 100 “Smart Cities” program, 100% rural electrification, indigenous space programmes, indigenisation of defence procurement and production, etc. are expected to boost offtake of aluminium sharply in the coming years.

The major end users of aluminium include engineering sector (electrical appliances, power), packaging (aluminium foils, beverage cans), transport (automobile engines, fabrications), construction (windows, door frames), and consumer durables (refrigerators, washing machines), etc. Moreover, while the demand in the western world is fairly distributed across usage sectors, the same is not true for India where the demand is concentrated in electrical and electronics sector.

The downstream products include rods, sheets, extrusions and foils. Apart from primary aluminium producers, there are secondary aluminium producers who account for about 40 per cent of aluminium consumption in India. There are more than 1000 players in the unorganised secondary aluminium sector consisting of numerous SMEs spread across various states in India.

Indian aluminium production, consumption and exports:

(figures in MT)

Company	2016-17	2017-18	2018-19
Primary Aluminium Production
NALCO	387,422	425,515	440,242
HINDALCO	1,264,062	1,288,351	1,296,468
VEDANTA	1,213,099	1,669,741	1,958,422
Total	2,864,583	3,383,607	3,695,132
Primary Aluminium Sales
NALCO	284,926	350,469	402,134
HINDALCO	662,902	640,617	636,120
VEDANTA	597,300	671,946	615,910
Total	1,545,128	1,663,032	1,654,164
Imports
Imports (Primary Aluminium)	422,355	360,847	334,867
Imports (Other Al. products)	396,913	475,468	670,265
Imports (Scrap)	931,249	1,121,436	1,364,109
Total Imports	1,750,517	1,957,751	2,369,240
Consumption = (Sales+Imports)
Total	3,295,645	3,620,783	4,023,404
Exports
NALCO	100,591	75,847	38,463
HINDALCO	600,505	649,986	658,935
VEDANTA	610,657	998,522	1,340,201
TOTAL	487,081	769,075	884,080

(Note: import data 2013-14 to 15-16 sourced from Ministry of Commerce data bank. Domestic sales and production data from Market sources)

India-Italy synergy as natural partners in development of Aluminium Industry

As champion of freer society, the vibrant democracies of both India and Italy is the impetus to be the natural partners of all areas of techno-economic-social collaborations & cooperation. The drivers are:

• Italy is an important member of the European Union and an important trade partner of India.
• Italian industrial set up is similar to that of India with a large number of small and medium industries.
• Italy is India’s 5th largest trading partner in the EU with annual bilateral trade turnover at $ 10.4 billion (2017-18). The presence of over 600 Italian companies are in India. Indian companies are also investing and acquiring units in Italy.
• Regarding the aluminium industry, the very dynamic picture of the flow of primary metal worldwide should be noted as a significant element; in this context India is an exporting country, therefore it is very important for the entire European area which is known to be always in short supply for primary metal. In terms of complementarity, the foreseeable demand on the part of the Indian downstream system of cutting-edge plants and technologies should not be underestimated; Europe and especially Italy are well equipped with such a know-how.
• The collaboration between two strong international events like International Conference and Exhibition on Aluminium (INCAL) and METEF in the field of metals sector can create opportunities for the producers and manufacturers of raw materials, processing, machining, technologies, machinery and plants, products and applications as well as on state-of-the-art technologies for metals recovery and recycling and the most original solutions for the automotive industry. 
• The role of ArtValley and Indo-Italian MetalHub is very significant for developing wide-range relationships between India and Italy; a project for defining cooperation in research and development between the industrial districts of Italy and in India, with dedicated attention to the aluminium industrial chain.

Impact of COVID-19 on World Aluminium Industry

The outbreak of COVID-19 virus in Wuhan, the capital city of Hubei (China) that accounts for 4.5% of China output, has become a global pandemic as declared by WHO and severely impacted domestic as well as global economy. Since Aluminium is the metal for growth, recession will adversely impact Aluminium Industry. The sharp dip and wide fluctuation in aluminium prices in pre and post COVID-19 scenario, has resulted in 60% of the smelters in the world incurring cash loss. The prolonged disruption in logistics value chain will further stress the already stressed industry. Growing number of end-users and manufacturers in Europe and North America have shut down operations forcing a demand contraction of about 4.7 Mln MT. Harbour estimates 5.2 Mln MT primary metal surplus in 2020 including ROW’s market surplus reaching to about 3.2 Mln MT. Some of the imperatives are:

China has remained the global hub of manufacturing and logistics supply chain of raw materials, has been affected by COVID-19: It has affected the supply of critical raw materials like Aluminium Fluoride, Caustic soda, Petro cokes, critical spares.

Inventory build-up creates pressure on working capital and profitability even for low cost producers:  Inventory reduction and net return are key challenges many producers need to overcome in subsequent quarters.

A slowdown in construction due to halt in projects:

COVID-19 has created a cascading impact on production outputs of aluminium billets which is a primary feedstock to produce extrusion. This is due to the halt of aluminium downstream market.

Supply chain and logistics impact: Australia is a major sourcing hub for bauxite. Due to the lockdown and the halt in bauxite mining, there is an acute feedstock shortage causing unhealthy swing in both metal and alumina market.

Halt in automotive production: Due to the lockdown across many countries, automotive shipments were significantly impacted making an overall impact on the economy. The consumer demands also drastically reduced due to various uncertainties.

Technologies that Could Prevent Business Disruption in the Aluminium Industry:

Industry 4.0: Technologies include advanced automation technology and smelter technology. Robotics integrated into aluminium smelters and cast-house operations eliminate the use of human capital and also avoid unsafe material handling.

Process control improvements: Automation and data from the shop floor and production units are captured based on real-time machine learning and artificial intelligence to enhance/optimize process control.

Expected global consumption

It is expected that world aluminium consumption will be92 Mln MT by 2025-26 & 119 Mln MT by 2031-32 based on correlation of world GDP & world aluminium consumption & also taking into account the GDP growth of 1.4% in 2020-21 and 1.5% in 2021-22 (from earlier projection of 3.2% of IMF) & subsequently stabilising at 2% .

HARBOR estimates that world primary aluminium demand will contract 9.4% y/y in H1 2020, and 5.0% y/y in all 2020.

As LME prices plunged to 4-year lows in nominal terms and 70-year lows in real terms, unprofitable operating capacity in the Western World, mainly located in US, Europe & Oceania rose to 4 Mln MT while China’s unprofitable operating capacity rose to 27 Mln MT or about 75% of the country’s total.

Impact of COVID-19 on Indian Aluminium Sector

Indian Economy is also severely affected by the outbreak of COVID-19. Goldman Sachs has downgraded India growth from 3.3% to 1.6% in 2020-21. Standard and Poor (S&P) has kept India growth rate at 3.5%. ADB has projected Indian growth at 4%. With a predictable stiff fall of GDP in Q2 & Q3 in FY 2020-21, India’s GDP for the whole year may be somewhere between 2% to 3%.

In India 80% of Aluminium is consumed by construction, transport and electrical sector which will face demand swing. As such, it is estimated that GDP for 2020-21 will climb down between 2% to 3% from existing 5.2%. Demand deceleration of 1 or 2 Mln MT of Aluminium is expected. The Aluminium Industry will have a recoiling effect from its downstream units (MSME) facing closer due to lockdown effect, reduction of discretionary spending by consumers, off take disruption in Automatic sector, lack of labour and cash crunch. It is expected that aluminium consumption in Indian will be 5.66 Mln MT by 2025-26 & 7.69 Mln MT by 2030-31 based on correlation between GDP & aluminium consumption & taking into account GDP fall to 2% to 3% in FY 20-21 with expected pick up to 5 % in FY 21-22 & subsequently stabilisation at 7%.

Supply & Demand side impact

• Disruption in the supply of input raw materials like Caustic Soda, Lime, CP Coke, CT Pitch, Aluminium Fluoride is going to impact adversely the aluminium sector in India as most of the requirements are met through imports from China.
• Severe crunch in liquidity arising out of persistent weakness in financial sector is deeply affecting the consumption. Recent fiscal and monetary initiative taken by RBI in providing liquidity of around 3.2% of GDP in the market will ease the availability of cash in the market.

• With economic recession our export of 2 Mln MT mostly to South East Asia is likely to face road block.
• Auto sector in India is also hit hard and overall consumption is likely to decrease from about 19% in near to medium term.
• There could be a potential boom in packaging sector with growing health consciousness given Aluminium’s enviable hygienic properties & boom in pharmaceutical industries.
• Construction which has also been directly hit would need policy & fiscal support to bring back the displaced labour & increase the consumption of aluminium.

WAY FORWARD for Indian Aluminium Industry post COVID-19 scenario:

Aluminium Industry has high potential for creating livelihood. Production of 1 Mln MT of Aluminium creates about 200,000 livelihoods. In order to spur up growth in Aluminium Industry a revival plan extending stimulus package covering tariff and non-tariff issues have been suggested as under:

• Higher Emphasis on Essential End-use Sectors like power and packaging.
• Multiple supply chain alternatives for shipments: Create strategic marketing tie-ups with competitors to utilize their marketing base in less-affected COVID-19 regions. Producers should consider alternative sales channels, such as traders, new potential end-users, e-retailers, spot auctions, etc.
• Ramp up Recycling Initiatives: Aluminium requires up to 95% less energy than primary production. Recycling should be given due importance for long-term sustainability of the industry. Secondary recycling should be promoted to contribute 30-35% of domestic metal requirements in line with international trend.
• Use hot metal to make use of energy (gas and power) to produce high value-added products (VAP) instead of producing voluminous lower VAP.
• Inventory and management of raw materials and consumables will be key factors. Develop Data analytics to monitor the price movements of raw materials to fine tune demand-supply and procurement cycle.
• Drive downstream production in each country to keep VAP in inventory. Alternatively, enter new market territories to have a wider base to mitigate the short-term risk of COVID-19.
• Focus and expand R&D during next few years for development and facilitation of localized sourcing. Primary producers to play handholding role for development of ancillary and downstream industry segment.
• Build strategic organizational structures with a commitment to investing in automation, continuous improvement efforts and employee training with target to keep up the cost to company low.
• Support in terms of tax relief, import duty reduction and export benefit.
• Balancing duty in case of scrap to help both primary and secondary producers.
• Reviving of consumer market by way of tax relief to auto buyers and sellers.
• Allocation of coal block to Aluminium Industry under Govt. dispensation route: Aluminium manufacturing is a power intensive industry having nearly 40% of input cost as cost of power. Consistent supply of coal is essential for survival and growth of Aluminium Industry.
• Conservation of Bauxite: India will have Bauxite for approx. 45-50 years at present reserve and consumption level. The mineral needs to be conserved to enable long-term benefits from value-addition within the country.
• With revised IBM guidelines (increasing cut-off limit of reactive silica from 3 to 5%), Indian Alumina Refineries will have to process lean bauxite ores thus conserving the precious mineral.
• Development of Applications and introduction of new technology through Industry 4.0 in process industry like aluminium sector.
• With a view to protecting Aluminium MSMEs, import duty on cheap end use products of Aluminium from China and other countries in the series 7603 to 7612 be increased by 5% to 10% and metal Ingot (7601) & Scrap (7602) import duty be enhanced by 5%.
• Core industry status should be given to Aluminium industry.
• There should be introduction of National Aluminium Policy.
• National Aluminium Scrap Policy should be introduced to regulate import & use of Aluminium Scrap. Policy will help obviating quality fall in recycled Aluminium.
• Problem of Aluminium MSMEs be studied & comprehensive package be extended. Handholding be done by mother plants in the same line as is being done in China.
• Provision for loan restructuring/ long term refinancing of loans.
• Aluminium Industry may be encouraged by giving suitable incentives to spend CAPEX in setting up new facilities and/or updating existing ones.
• Moratorium on royalty of mineral ore and coal mining & coal cess for this FY-21.
• Demand Development Measures: The Government in consultation with the Aluminium Industry may develop polices and guidelines for increasing the consumption of aluminium in the applications of improving performance of automobiles, replacement of steel coaches in suburban trains and goods trains with Aluminium wagons, use of aluminium for residential and commercial construction, promote usage of aluminium in packaging of food materials, mandate usage of Aluminium in Smart City Projects as a green initiative.

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