The Hindu Survey of Indian Industry 2014
The global consumption of aluminium has grown at a CAGR of six per cent since 2001, and has scaled up to 50 million tonnes in 2013.
Over the last few decades, aluminium has been one of the fastest growing metals globally as well as in India. The versatility of aluminium and its excellent properties have been the drivers of this rapid pace of growth, making it one of the most preferred engineering materials.
More recently, aluminium has also gained the designate of being a 'green metal' due to its recyclability, coupled with its potential to reduce the energy consumption of vehicles significantly. India is at an inflexion point given its favourable demographics with a rising middle class, working age population and urbanisation. Beyond an inflexion point, lifetime products such as aluminium grow rapidly.
Centre of gravity shifting to the East
The global consumption of aluminium has grown at a CAGR of six per cent since 2001, and has scaled up to 50 million tonne in 2013. Correspondingly, consumption in India has grown at a CAGR of 15 per cent. In a major shift, global capacities are moving towards the East from the West. In 2005, China, the
Middle East and India constituted 36 per cent of the world's capacity of primary metal, and this rose to 55 per cent by 2013. Expensive capacities in North America and Europe are shutting down as they become unviable.
This presents a unique opportunity for the Indian aluminium industry players to become global leaders. The per capita consumption, still significantly lower than in most other nations, has increased from 1.1 kg in 2005-06 to 2.1 kg in 2013-14. This translates into an average annual growth rate of nine per cent. It is also important to note that in a comparable period, the per capita consumption of steel has increased at a CAGR of 7.7 per cent — from 37 kg to 57 kg. There are a few implications of these trends in per capita consumption. The penetration of aluminium is surely deepening, and is ahead of the rate of the general economic growth.
Hindalco Industries Limited is an integrated aluminium company i.e. it operates in the entire value-chain from bauxite mining to power generation to downstream products such as rolled products, foils, and extrusions.
It is one of the largest producers of primary aluminium and copper in Asia. In the last decade, the company has witnessed a quantum leap in turnover from Rs. 2,600 crore to Rs.80,000 crore.
There have been a number of discontinuous leaps. It all started with the acquisition of Indal (an Alcan company) in 2000, increasing stakes in Utkal Alumina to 100 per cent from 20 per cent, acquiring Pennar Aluminium. In 2007, Hindalco touched a new frontier with the acquisition of Novelis, thus becoming the world's largest rolling company with a strong presence in 5 continents and entering the league of top seven global players. Currently, Hindalco has invested Rs.42,000 crore for its greenfield investments.
The investments are into both upstream and downstream facilities, and are mostly in the eastern part of India which is rich in natural resources. These expansions are expected to double the turnover of Hindalco. These new facilities will bring in cutting-edge technology, much better efficiency norms, competitive cost structure and superior environment parameters.
The projected growth in aluminium production implies that the role played by the Hindalco in India's economic development is set to enlarge multi-fold — be it in terms of direct and indirect employment or contribution to tax collections. More importantly, the large capital investments will ensure value addition to the country's mineral resources.
These projects, coming up mostly in underdeveloped regions, hold the potential to dramatically improve these local economies - providing new sources of prosperity and livelihood to people in the vicinity.
With a strong downstream product portfolio, Hindalco has been a pioneer in many aluminium applications in the country. Promoting aluminium through new application development is one of the top agendas.
Hindalco has a focused approach in finding opportunities for deepening the usage of aluminium in various applications to convince the potential users on aluminium's value proposition.
Hindalco participates in the design of the applications and to support the users in every way — especially during the initial phase of trials. That's the way to convert the potential of aluminium consumption in India into a reality. Over 41 per cent of aluminium is currently consumed in the power sector in Indian market while the world has moved from power to transportation, packaging and construction.
Hence, there is a huge opportunity for aluminium to grow in the transportation sector in BiW (body in white) and cans. Hindalco has invested in a new mill to produce can-stock, first in India, which is another endeavour to promote and give a boost to the consumption of aluminium in the economy. Another opportunity lies in the role of aluminium in building and construction products.
This is again a win-win proposition for the industry as well as environment. While the medium-term prospects on the demand-side as well as supply-side are very bright, there are many challenges that the industry is going through in the interim. The large projects are being implemented at a time when the industry has been globally witnessing an acute pressure - driven by rising input costs, on one side, and the fall in metal prices on the London Metals Exchange (LME), on the other. Many global aluminium majors have reported losses or significant contraction in margins.
Alongside these global trends, the local environment for the industry has become extremely challenging. Deterioration in the law and order conditions has made it difficult to implement projects on the ground — leading to delays in execution and the associated financial stress.
The movement of critical inputs for the plants is being regularly disrupted in certain geographies. Getting the right kind of talent at remote locations poses an additional challenge for the industry. Of course, most of these challenges are common to the large-scale manufacturing sector in India. In the case of aluminium industry, perhaps its criticality increases due to the fact that aluminium manufacturing is a continuous process; and disruptions are far costlier than in many other
The industry needs to tackle the challenges around the local environment and issues related to availability of and access to key resources. Its R&D (research and development) efforts need to focus on improving energy efficiency and other resource related efficiencies. At the same time, a wider stakeholder consultation and development approach will be critical to manage the local environment. The resource-based nature of the industry has implications in terms of the social aspect of sustainability.
In fact, this was a major driver for the shift of the industry from the developed West to the developing countries. Most mines and upstream plants are located in resource-rich, but remote locations where the industry has to shoulder the additional responsibility of the overall social development of the community in which it operates.
India is one of the fastest growing economies in the world. Its GDP grew at 8.6 per cent in 2009-10; 9.3 per cent in 2010-11 and 6.2 per cent in 2011-12. Even a 5 per cent growth in 2013-14 is much better than many economies of the world. A revival of manufacturing is necessary to put the country back on the growth path.
The aluminium industry can contribute to stoke the revival of the manufacturing sector. India has the potential to become global hub for aluminium production as India is home to one of the largest reserves for high quality bauxite and coal. With a substantial investment by Indian players in the aluminium segment, India is well positioned to realise the dream of becoming a globally competitive player and be a major exporter of aluminium and aluminium products.
The expected quantum leap in the Indian aluminium industry will surely contribute in putting India and Indian economy back on the growth trajectory.
The writer is Managing Director, Hindalco Industries
Dr. Pragnya RamGroup Executive President, Corporate Communications & CSRAditya Birla Management Corporation Private LimitedAditya Birla Centre, 1st Floor, 'C' WingS.K. Ahire Marg, WorliMumbai 400 030.
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