The growth in primary aluminum production slowed down in 1998 as against the preceding year. Aluminum production in 1998 increased by 4.5% to 19.5mn tons. As against this increase growth in production during 1998 was only 2.4% at 19.9mn ton

Aluminum Capacity

Aluminum production in 1998 was down by 5.7% in Africa and by 3.5% in Asia. North America as well as West Europe witnessed an increase of 2.6% and 7.6% respectively. Around 48.3% of the total aluminum production of 19.9mn ton was produced by these two regions.

Even though the aluminum output increased by a paltry 2.4% in 1998 weak demand for the metal pushed prices to record lows. Aluminum prices sank to $1,170/ton in February 1998 from $1,500/ ton in the same period of the previous year.

The ongoing crisis in the South East Asian countries has resulted in de-stocking of aluminum by these countries. South Korean companies like Hyundai, Kia and Daewoo are clearing their aluminum stocks or are exporting the same in a bid to reduce their inventory levels in anticipation of a sluggish demand.

The economic crisis in Japan has further aggravated this problem. Japan is one of the major consumers of aluminum in the world accounting for 13.3 % of the world aluminum consumption. The country is a net importer of metal with its production being a meager 0.2 % of world production. Hence, in the short run the outlook for the metal in the international markets seems bleak with Japan facing an economic crisis.

Steady increase in production and exports from the CIS nations are expected to further put pressure on the prices. This is due to the fact that the demand for aluminum from the CIS nations is expected to reduce given the state of their economies.

Another factor that could further create a glut in the aluminum market is the reactivation of smelter capacities from the Western countries. During 1994 producers in the US, Canada, EU, Norway, and Russia signed a memorandum under the aluminum industry pact to cut aluminum production to the tune of 1.5 million ton. This was done in response to an over supply of aluminum in the domestic market. This is expected to add another 0.55mn ton of aluminum to the current supply.

Aluminum prices have a great bearing on the performance of the aluminum industry. Prices in the local market closely follow the prices on the London Metal Exchange (LME). The prices on the LME in turn reflect the demand-supply situation in the world aluminum markets. The domestic demand/supply balance and landed cost (LME prices, import duties and exchange rate) are the determinants of domestic aluminum prices.

Worldwide aluminum outlook is bearish due to weak demand from Japan. Moreover some of the producers who had resorted to production cuts have now resumed normal operations. The extra capacity is not being absorbed by the market, which is reflected in the depressed aluminum prices.

With the weakening in aluminum prices and slow down in demand from the electrical sector the short-term outlook for the Indian aluminum producers appear unexciting. In the long term the development of new applications and growing consumerism will further increase aluminum demand. The long-term outlook for the sector is bullish.