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India to face major aluminum surplus by 2013

Business Standard reported that the aluminum industry in India may be moving towards overcapacity, since supply is likely to grow in excess of demand going forward. Considering that all aluminum projects would begin commercial production with expanded capacity as planned, there could be at least 2 million tonnes of additional capacity for exports by 2013.

Fitch Ratings report recently said that India's aluminum productions will more than treble to 4.4 million tonnes by mid 2012 with new capacities coming on stream, along with requisite captive power generation capacities.

Aluminum meter production in million tonnes

Company20092013
Hindalco Industries0.4881.138
Nalco0.4031.000
Vedanta Resources0.6382.000
Others0.2000.300


Vedanta, Hindalco and Nalco together produced 1.5 million tonnes of the metal for the year ended March 31st 2009, a growth of 9% YoY. Though higher cost capacities were shut down to the extent of 0.14 million tonnes additional capacities from Vedanta Aluminium Limited in Orissa, along with incremental capacity expansions at Nalco and Hindalco compensated for the loss. For 8 months between April and November 2009, total aluminum produced was 0.98 million tonnes, a rise of 16.6% over the corresponding period in the previous year.

The report said that although demand outlook for aluminum is likely to grow in line with the economy, supply is estimated to grow far in excess of demand resulting in overcapacity in the domestic market over 2011 to 2013. Large power and housing projects, which use aluminum extensively, depend largely on growth in economy and thus, spur consumption of the metal.

According to an Icra report, with sharp increase in capacity over 2010 2013, India will start massive export of aluminum. The country could by 2013 be an annual exporter of 2 million tonnes of the metal, assuming the planned capacity expansions become operational as currently envisaged. It added that the current demand-supply situation for aluminum was largely balanced with consumption in line with existing production and a relatively small volume of exports.

The report said that India's per capita consumption of aluminum is 1 kilogram as against 30 kilogram in the developed world. The industry is exploring new application areas and untapped demand potential, which may result in greater preference for aluminum in the future.

The expansion projects are subject to execution risk given their scale, Greenfield nature and regulatory risks with regard to mining approvals. These could delay some of the projects, or postpone indefinitely. However, the risks are partly offset by the fact that the new capacity would have low, globally competitive costs once operational. The surplus production would be exported.

(Source: www.business-standard.com)



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