Energy Resources in India

The most commercially mined aluminium ore is bauxite, as it has the highest content of the base metal. The primary aluminium production process consists of three stages. First is mining of bauxite, followed by refining of bauxite to alumina and finally smelting of alumina to aluminium. India has the fifth largest bauxite reserves with deposits of about 3bn tonnes or 5% of world deposits. India's share in world aluminium capacity rests at about 3%. Production of 1 tonne of aluminium requires 2 tonnes of alumina while production of 1 tonne of alumina requires 2 to 3 tonnes of bauxite.

The aluminium production process can be categorised into upstream and downstream activities. The upstream process involves mining and refining while the downstream process involves smelting and casting & fabricating. Downstream fabricated products consist of rods, sheets, extrusions and foils.

Power is amongst the largest cost component in manufacturing of aluminium, as the production involves electrolysis. Consequently, manufacturers are located near cheap and abundant sources of electricity such as hydroelectric power plants. Alternatively, they could set up captive power plants, which is the pattern in India. Indian manufacturers are the lowest cost producers of the base metal due to access to captive power, cheap labour and proximity to abundant supply of raw material, i.e., bauxite.

The Indian aluminium sector is characterised by large integrated players like Hindalco and National Aluminium Company(Nalco). The other producers of primary aluminium include Bharat Aluminium (Balco), a subsidiary of Vedanta Resources.

Aluminium offers a rare combination of valuable properties. It is three times lighter than Iron but is almost as strong as steel, extremely flexible and corrosion resistant due to thin surface layer of aluminium oxide. Aluminium has been continuously finding new applications due to rising price competence, superior weight to strength ratio, corrosion resistance, form ability, dampness etc.

On the industrial side, aluminium is heavily used in electrical power transmission, machinery and equipment, and construction. Housing, in particular, makes heavy use of the lightweight material as a substitute for steel and wood in doors, windows and siding. On the consumer side, aluminium is used in a variety of retail products, including cans, packaging, air conditioners, furniture and vehicles.

Outlook

The Indian recovery is on the mend and the economy is expected to grow at over 7.5% in FY 16 and FY 17. This would result in aluminium demand growth on account of stronger consumption and investment. The government's thrust on power sector that went through a challenging phase bodes well for aluminium industry as power sector is a strong demand driver for aluminium consumption in India.

The US demand is expected to remain strong growing at a CAGR of 45% over next few years, as the housing recovery gains traction, car sales continue to improve and aluminium demand benefits from new applications, particularly in the automotive sector. Western Europe is expected to grow moderately amidst economic uncertainty. The aluminium demand is expected to grow at around 2.5%.

In 2015, Chinese aluminium demand is expected to grow at around 67%, a substantial slowdown from the double digit increase of the past decade. Demand growth will be strongest in consumer-related sectors.

In short term, Chinese supply is expected to continue to impact Rest of the World demand supply dynamics adversely. However in long term, overall the demand supply scenario for primary aluminium globally looks encouraging as demand continues to be robust with expectations of around 6% growth.

On the positive side, the reduction in prices of crude derivatives in the recent months is expected to help on the cost front. In the recent quarters, coal availability in India is showing signs of improvement. With the expected growth in output of public sector coal mining companies and the likely operationalization of captive coal blocks, coal availability in the country may improve further, which will ease the cost side pressures.