The Indian aluminium sector is characterised by large integrated players like Hindalco [Get Quote] and National Aluminium Company [Get Quote] (Nalco).

India has the fifth largest bauxite reserves with deposits of about 3 bn tonnes or 5% of world deposits while its share in world aluminium capacity rests at about 3%.

However, the per capita consumption of aluminium in India is abysmally low at under 1 kg as against nearly 20 kgs in the US and Europe, 15 kgs in Japan, 10 kgs in Taiwan and 4 kgs in China, which implies significant potential for the sector.

Key Positives Growth opportunities: The per capita aluminium consumption in India is less than 1 kg compared to about 5 kgs in China and Brazil and about 30 kgs in developed countries like the U.S. and Germany. And while globally there are about 3,000 applications of aluminium, in India one can see only around 300 applications. These factors leave a lot of room for the domestic sector to grow. The China effect: International aluminium prices continued to move into higher territories with China, a major consumer of the metal, continuing to register strong economic growth rates. This in turn led to an even stronger growth in aluminium consumption thus providing support to strengthening aluminium prices. Cost advantage: Indian aluminium producers are one of the lowest cost producers in the world. Abundant bauxite reserves and access to cheap labour have given aluminium manufacturers an edge over their international peers. Further, with relatively lesser fragmentation in the industry, companies have a greater control over pricing.		Key Negatives Global watch: While the year 2004 was impressive for the global aluminium industry, led by the strong aluminium consumption growth in China and ample support from the US, mixed signals of economic growth from other major developed countries like the Europe and Japan needs to be kept a close watch. It must be noted that these two regions account for about 1/3rd of world aluminum consumption. Chinese imports: Further, with China increasing its domestic aluminium production, it will increasingly meet its metal requirements internally, thus reducing its import requirements, consequently putting pressure on world aluminium prices. Waning tariff protection: The reduction in import duties reduces the net tariff protection for the aluminum producers, which would keep a check on the domestic realisations of aluminium majors.

Budget 2005-06: Complete Coverage

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