Aluminium: Expected to remain in deficit in 2008 and onwards
The global demand remains strong, while supplies are being impacted due to spike in power costs; Domestic players witness enrichment of product mix and geographical mix
Aluminium prices at LME have come down from US$ 3041 per tonne on 23rd April 2008 to US$ 2825 per tonne on 5th June 2008. The prices have been coming down on a sequential basis, even from March 2008. Still, they are higher on y-o-y basis by about 5% in April 2008, nearly 4% in May 2008 and about 7% in June 2008 (upto 5th June 2008).
Aluminium prices continue to remain range bound in the range of USD 2800 to 3000 per tonne in April and May 2008. The average aluminium prices for the month of May'08 stood at USD 2903.95 per tonne, 4% higher on Y-o-Y basis. However, the prices for May are 2% lower on M-o-M basis. The aluminium prices have shown the increasing trend in past couple of months and the real push behind metals this year has been an influx of fund money into commodities with a bit volatility. With equities suffering under the weight of the global credit crunch and the dollar falling sharply, funds are looking for strong returns. As a result, commodities are in vogue as a hedge against rising prices.
The surging trend in international prices has also reflected in the domestic aluminium prices and the domestic average aluminium prices for May 2008 stood at Rs 145.20 per kg in May 2008, 3% higher on Y-o-Y basis. However on M-o-M basis the prices have improved by 2% against dip in international prices on Y-o-Y.
Domestic aluminium production improves on Y-o-Y in April 2008
In April 2008, the total aluminium production in the country was estimated at 102,317 tonne (3% higher on Y-o-Y) against a target of 101,909 tonne. Out of this, National Aluminium Company (Nalco) produced 29,123 tonne (target 28270 tonne), Bharat Aluminium (Balco) produced 29,893 tonne (target 30262 tonne) and Hindalco Industries (Hindalco) and Madras Aluminium (Malco) produced 40,109 tonne and 3,192 tonne respectively against target of 40,157 tonne and 3220 tonne. Nalco's production amounted to 28% of total production for April 2008 and Balco, Hindalco and Malco's production constituted 29%, 39% and 3% of total aluminium production for April 2008.
NALCO sold 33085 tonne of alumina and exported 4057 tonne of aluminium in April 2008.
Global aluminium & alumina production data
As per the data given by Aluminium International Institute, world aluminium production for the period January 2008 to April 2008 was higher by 7% to 12.7 million tonne on Y-o-Y basis (11.87 million tonne in corresponding previous period). Growth in Chinese aluminium output, which contributes about 33% of the world primary aluminium production, has been 9% Y-o-Y to 4.21 million tonne. The aluminium output in Asia, except China, (10% of total production) surged by 4% on Y-o-Y to 1.26 million tonne.
In April 2008 only, the world aluminium production was 3.21 million tonne, up 7% on Y-o-Y basis while the Chinese aluminium production which constitutes 34% of the world' total aluminium production, increased by 11% Y-o-Y to 1.10 million tonne in April 2008. The aluminium output in Asia, except China (9.8% of total production) surged by 4% Y-o-Y to 0.31 million tonne.
The world alumina production for the quarter ended March 2008 was 20.29 million tonne against 18.55 million tonne in corresponding previous quarter, up 9% on Y-o-Y basis. The alumina production of China (constituting 26% of total world alumina production) for the quarter was 5.26 million tonne against 4.38 million tonne in corresponding previous quarter, up 20% on Y-o-Y basis.
Expansion projects of Hindalco
Brownfield Expansions
Muri: The expansion of the Muri Alumina refinery from 110,000 TPA (Tonne Per Annum) to 450,000 TPA is under commissioning in a phased manner. The entire steam and power requirement is being met by the new captive power plant. The production from the expanded facility is being ramped up progressively and has reached 180,000 TPA now. It will reach its full capacity during the year.
Hirakud: Phase II of the expansion of the smelting capacity from 100,000 TPA to 143,000 TPA is on track. Its capacity has touched 110,000 TPA in Q4' FY08 and will scale upto 143,000 TPA by July'08. The scaling up of the power generation capacity from 267.5 MW to 367.5 MW is complete and all units have been commissioned.
Belgaum: The allotment of the lease for bauxite mines for expanding the alumina refinery capacity at Belgaum, Karnataka from 350,000 TPA to 650,000 TPA is still awaited
Greenfield Expansions
Aditya Aluminium, the integrated aluminium project, encompassing 1-1.5 million TPA alumina refinery, 260,000-359,
Mahan Aluminum project with a smelter capacity of 359,000 TPA and CPP of 900 MW is on schedule. The land acquisition for the project is underway. The Company has been allotted a coal block in a JV with the Essar group for the coal requirement of the CPP. Preliminary environmental clearances have been obtained. The power connectivity for commencing construction has been approved. The Water resource department has provided the necessary facilities as well. The production of coal is likely to start by Oct'09. The technology contract for the Smelter has already been finalized with Aluminium Pechiney. The Smelter is expected to roll on by September 2012.
Latehar For the Latehar project with a smelter capacity of 359,000 TPA and CPP of 900 MW, Tubed Coal mine has been allotted jointly with Tata Power. Preliminary Environmental clearances have been obtained. Land acquisition is in progress. Power for construction activity is sanctioned. The technology contract for Smelter has already been finalized with Aluminium Pechiney. The approximate date of commissioning is September 2013.
Utkal: Construction of Utkal Alumina Refinery with a capacity of 1.5 MTPA is currently underway. The company has acquired the land for the plant and other facilities. The Basic engineering packages have already been received from Alcan (technology supplier). Most of the major packages have been ordered. Detailed Engineering for the main plant area is almost complete. The civil works for Alumina refinery and Captive Power Plant is in progress. Bauxite mining activities will start by March 2009. The commissioning of the Plant is expected by March 2010.
Hindalco Almex Aerospace This joint venture company for manufacture of high strength aluminium alloys for applications in the aerospace, sporting goods and surface transport industries is at an advanced stage of implementation. Key equipments have arrived at site and are under installation. The project is slated to be completed by July'08
Details of Sterlite's Aluminium projects through Vedanta Aluminium
Sterlite-owned Balco currently has a capacity of 345,000 TPA at Korba, Chattisgarh, a 810 MW captive power plant and a 200,000 TPA alumina refinery, backed by 11.6 million tonne of high-grade bauxite resources. Sterlite has undertaken green field expansion through Vedanta Aluminium, in which Sterlite holds 30% equity. Vedanta has also built a 1.4 million TPA Alumina plant, which is used to feed Balco's smelter. Currently, Sterlite's cost for producing Aluminium is US$ 1550 per tonne, which is expected to decline to US$1100, once Alumina becomes available from Vedanta Aluminium.
Vedanta is also building a 0.5 million TPA aluminium smelter at Jharsuguda, Orissa, in two phases of 0.25 million TPA each, which will be supported by a 1215 MW captive power plant. The commissioning of the phase I of the Jharsuguda aluminum smelter comprising of 250,000 tonne per annum capacity would commence shortly, more than a year ahead of schedule, and this will get progressively commissioned during CY09 and will contribute significantly to the current year aluminum production. For the aluminum production, all the alumina refined will be fed from own captive refineries.
Rising power costs add cream to aluminium prices
The upward trend in electricity prices and security of supply is a key challenge in countries with major aluminium smelting capacity such as China, South Africa, Brazil, and the USA. Electricity prices are rising at 10% p.a. on a production-weighted basis. In China, the electricity supply balance is expected to tighten further and tariff discounts to smelters are being removed. Alumina producers are also affected by rising power costs. However, potentially even more important is reduced availability of high quality bauxite. Most vulnerable are Chinese refineries dependent on imported bauxite mostly from Indonesia. The alumina: aluminium price linkage rate is also rising.
Outlook
Aluminium market is expected to be in deficit in 2008, moving into deeper deficits in 2009 and 2010. Supply surpluses loom further out, but inventories will remain low relative to history. The main drivers of the deficit are supply curtailments induced by high power costs and shortages, and continued robust demand growth, about 8% p.a. This outlook will support prices in years to come and global aluminium prices are expected to surge in long run. However, in the short term some weakness may happen following a reversal of recent dramatic inflow of investment funds.
In the rising power cost scenario, domestic vertically integrated aluminium majors Hindalco and Nalco are relatively better placed, both to capture the uptrend, and withstand pressure during downtrend in prices. Their captive availability high aluminium content bauxite and captive power plants together makes them one of the cheapest producers of aluminium in the World.
From: Vivek Kochar vivek.kochar@
BigGains !!
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