Structurally, the Indian aluminum industry comprises of two segments – primary or basic metal manufacturing industry, and the secondary or downstream metal manufacturers or value addition industry. Product-wise, the industry comprises of extrusions, rolled products, wired products and foils. The market leaders in the manufacture of rolled products are INDAL and Hindalco. Value-added downstream products of aluminum include (a) rolled products (b) extruded products (c) foils (d) wire rods and (e) aluminum wheels used in automobiles. Integrated producers like Hindalco and INDAL have a strong presence in downstream products.  

The value chain in the aluminum industry extends from bauxite that is refined to produce alumina, which in turn is smelted to produce the metal. Finally, aluminum is transformed into semi-finished value added products such as sheets, foils, rods, extensions and powder. Of these, aluminum lies at the highest end of the value chain. 

Rolled products are primarily utilized in the production of aluminum foils, pressure-cooking sheets, building sheets and flooring sheets used in transport. The present installed capacity of rolled products is about 0.29 million tpa. Integrated aluminum manufacturers (with the exception of Nalco), with a production capacity of 0.21 million tpa, account for approximately 75% of the aggregate capacity. 

The main advantages enjoyed by the Indian aluminum industry include

• Availability of large deposits of bauxite

• Utilization of power through captive power generation facilities

• Availability of relatively cheap and skilled labor

• Growing domestic demand

A bulk of the manufacturing cost is the power cost incurred while converting alumina into metal. This is a source of concern as India is a power-deficient country. To overcome this problem, the best solution would be to export alumina to power-rich countries such as UAE and Bahrain, and allow re-import without duty incidence.  

The year 1989 was a watershed in the history of the industry marked by its decontrol and the lifting of the Aluminum Control Order, followed by the liberalization of the import norms in 1991. Of late, the Indian aluminum industry is witnessing a lot of consolidation moves (mergers and acquisitions). This is expected to lessen competition, realize better prices and reduce the import of aluminum. The crucial factors for success in the highly price sensitive Indian aluminum market include affordability, ease of supplies and just-in-time delivery.

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 a result, the demand-supply scenario is likely to favor aluminum 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.