The domestic aluminum sector appears to have good future prospects keeping in view the growing domestic demand (by about 8% pa), improvement in the Indian economy and the high import duties levied on the import of aluminum. Another positive indicator is that aluminum prices are on an uptrend. A fall in the value of rupee would further boost exports. The future of the industry’s health largely depends on value-added downstream products.

The output of rolled products, extruded products and foils is projected to grow by 0.2 million tpa over the next 5 years. This increase will be largely accounted for by the integrated producers. This is because a majority of the downstream manufacturers are in a severe financial crisis and are unlikely to go in for expansion.

The short-term outlook for the aluminum industry is not so encouraging as no major spurt in infrastructure activities in the domestic scene is visible. In the long run, however, demand is expected to pick up due to a rise in the number of potential applications for aluminum. The electrical sector is expected to remain the biggest end-user, particularly with applications in the form of wire rods for transmission of electricity. Aluminum is also expected to find growing applications in the automobile, packaging, consumer durable and construction sectors. On the price front, prices of aluminum are expected to fall in 2001 due to surplus supply. 

The main drivers of demand for aluminum in the near future include the growing application of aluminum and value-added products in construction, power transmission, transport and packaging sectors. The boom in the automobile industry is also one of the key factors for the bright outlook of aluminum industry.

Domestic aluminium consumption is expected to grow by around 6 percent in 2001-02, with the major growth expected to come from the packaging, building, construction and transport sectors. The contribution from the power sector, which accounts for 31 per cent of total consumption, is expected to reduce unless steps are taken to revive the state electricity boards. The domestic industry already has a surplus, and with the capacity expansion of Hindalco (1,00,000 tonnes) and Nalco (1,15,000 tonnes), the demand-supply gap is further expected to widen, resulting in an increased focus on export markets. Margins of domestic aluminum producers are expected to remain stable as the increase in the cost of inputs, such as coal and fuel oil, is expected to offset the increase in realizations.

On the international front, the Bonneville power administration has asked aluminium smelters in Pacific Northwest to shut down for two years due to electricity constraints, which will most likely lead to a reduction in aluminium supply. This could be a major upward trigger for LME prices, as Pacific Northwest accounts for 38.5 per cent of US capacity. LME prices have hardened in May from $1,455 per tonne to $1,555 levels on the back of falling stocks (479,000 tonnes in March to 464,475 tonnes now).

However, global demand dropped 3 percent in January-March 2001. Even if the relative profitability of export markets is pulled down by falling LME prices, the international market is more attractive than the domestic one. Due to high surplus, players are focussing on value-added products such as sheet and foil where the correlation with LME prices is less, resulting in higher realisations.