International aluminum prices: Prices on the London Metal Exchange have a major impact on the domestic aluminum prices. Prices on LME indicate the demand-supply position, inventory levels and the forward aluminum prices. Major demand driving factors for aluminum in the global arena include an improvement in the US and Japanese economies and a revival of the South East Asian economy. As the Indian aluminum industry faces threat from imports, only an improvement in international demand-supply situation with a resultant increase in aluminum prices will help domestic players improve their sales realization.

Capacity Utilization: It also plays an important role.  

Growth in end-user Segment: The demand for aluminum boards is dependent upon growth in end user segments like power, consumer durables, automobiles, packaging, etc. The electrical sector constitutes 36% of the aluminum demand and therefore demand for aluminum is dependent on the overall growth in the economy, especially infrastructure spending.

Power tariff: Indian smelters consume 15,000-16,500 kWh per ton of aluminum as against 14,000-14,500 kWh per ton consumed by global smelters. Nalco is the most efficient producer in terms of power consumption with a consumption of 15,840 kWh per ton. On the other hand, power consumption of Hindalco is 16,503 kWh per ton of aluminum. Downstream as well as recycling producers consume only 1/10^th of the power consumed by integrated producers. Thus availability of continuous and inexpensive power is critical to sector's fortunes.

Duty structure: In March 1993, the basic import duty on primary aluminum was 20% while that of semi fabricated products was pegged at 70%. However, subsequently import duty on primary aluminum was increased to 25% whereas that on semi fabricated products was reduced to 25%. Primary aluminum is the main raw material in the manufacture of semi fabricated products. Hence, the duty increase affected the downstream producers in two ways (a) it increased the raw material cost and (b) it increased threat of cheap imports, especially from South East Asian countries. This adversely affected the fortunes of downstream manufacturers.

Threat of substitutes: The main substitute threats faced by aluminum are from steel (in the automobile sector), plastics and HDPE (in the packaging sector), and copper (in the electrical sector). The relatively high cost of aluminum when compared to steel is another factor that could be detrimental to its growth.