India's per capita consumption of aluminium is way below both developing as well as developed economies, thus lending itself to a tremendous growth potential in the years ahead. Further, given the metal's inherent advantages over other metals, it is increasingly replacing other metals, thus leading to an additional demand boost.

For example, the emphasis on increasing fuel efficiency and reducing pollution is forcing quite a few automakers to replace steel with aluminium as the latter's favorable weight to strength ratio and better conductivity helps increase mileage and reduce emissions.

Also, as economies become more developed, a lot of aluminium finds its way into the packaging and industrial applications, the penetration of which is currently on the lower side. All in all, we believe that the demand for aluminium in the country will grow in the region of 7%-8% for quite some years.
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Industry wish list

Customs duty on feedstock such as coke to be reduced further

Captive mining should be given infrastructure status

Encourage increased demand by way of more investments in road, mining, port, water, oil and gas

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Budget over the years

Budget 2005-06

Reduction in customs duties on non-ferrous metals. This was likely to keep a check on a rise in prices, as landed cost of these would effectively reduce, thus reducing the net difference between landed and domestic costs.

Budget 2006-07

Customs duty on primary and secondary forms of non-ferrous metals namely aluminium, copper, zinc and tin and other base metals, has been reduced to 7.5% from the earlier 10%.

Budget 2007-08

Customs duty on primary and secondary forms of aluminium reduced to 5% from the earlier 7.5%.

Dividend distribution tax to be hiked from 12.5% to 15%.

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Key positives

Robust outlook: It has been well documented that developing countries like India with growing infrastructure needs have high dependence on primary metals like aluminium. Thus, if the Indian economy has to grow in the region of 8% to 9% per annual in the foreseeable future, a similar if not more growth in aluminium consumption cannot be denied as it is used extensively in sectors like power, transport and construction.

Increased substitution: Thanks to the metal's inherent advantages like better conductivity and higher strength to weight ratio, a lot of aluminium has started replacing other commodities like steel and plastics in applications ranging from packaging to transportation. This is likely to provide further boost to the growth in aluminium consumption in the coming years.

Availability of high-grade bauxite mines: India's total recoverable bauxite ore reserves are estimated to be in the region of 2.5 bn tonnes out which nearly 80% are high-grade reserves that require less energy for conversion into alumina. This makes the aluminium manufacturing process cost competitive and also ensures raw material availability for many years into the future.

Cost competitive: The potent combination of availability of high grade reserves and low labour cost makes Indian companies among the lowest cost producers of the metal globally, thus enabling them to weather the industry downturn better than most of their international peers.

Key negatives

A costly metal: Due to its cost disadvantage, in certain low value applications, plastic, steel and copper can substitute aluminium. This problem becomes all the more acute in a low per capita income country like India where despite the latter's inherent advantages, people, for lack of financial resources might be forced to use cheaper alternatives.

High dependence on power sector: Despite improvements in technology, manufacture of aluminium still consumes a lot of power and the supply is also required to be uninterrupted. Although most of the Indian companies have captive power plants, the installation of the same pushes up capital costs, which might eventually lead to higher debt burden.