Alu­minium at a min­i­mum

Down to Earth - - MINERAL -

US $1,600 per tonne in Septem­ber 2015. Prices are ex­pected to fall fur­ther to US $1,500 per tonne,as China starts ex­port­ing three mil­lion tonnes of alu­minium stashed in its ware­houses at an even cheaper rate.

Chi­nese trig­ger

China, which has been ex­pand­ing its in­fra­struc­ture over the past decade, is the world’s big­gest con­sumer of alu­minium. It started over­pro­duc­ing the metal, thanks to cheap land and labour and gov­ern­ment sub­si­dies. The coun­try to­day con­trols over half of the global pro­duc­tion and dom­i­nates the es­ti­mated US $100 bil­lion alu­minium in­dus­try that pro­duces the metal for an ar­ray of prod­ucts, in­clud­ing cars, cans, rail­way coaches, aero­planes, wind­mill blades and high-tech elec­tron­ics such as smart watches.

The prob­lem be­gan when the world was re­cov­er­ing from the global fi­nan­cial cri­sis around 2009.Dur­ing this time,China started build­ing an in­ven­tory for its do­mes­tic in­dus­try by buy­ing baux­ite from In­dia and Malaysia. This led to an over­sup­ply of the metal in China’s do­mes­tic mar­ket. China’s metal de­mand ex­pe­ri­enced a crash in the first half of this year af­ter its econ­omy be­gan to slow down—its gdp growth rate has fallen from a peak of 14.2 per cent in 2007 to seven per cent in June 2015.

This eco­nomic tur­moil led to a slow­down in Chi­nese de­mand, caus­ing a steep drop in metal prices, says Rahul Dho­lam, se­nior re­search an­a­lyst of Mum­bai-based fi­nan­cial con­sult­ing agency, An­gel Broking. By early June, alu­minium prices be­gan to plum­met at all metal ex­changes in China.Fanya Metal Ex­change, which was stor­ing the metal as col­lat­eral for loans, had to wrap up its busi­ness. Its head, Shan Ji­u­lang, who was ab­scond­ing, has been nabbed by the po­lice. The crash had global reper­cus­sions. By July, prices fell to US $2,000 per tonne at the Lon­don Metal Ex­change, the main trad­ing Over­pro­duc­tion and a slow­down in China's econ­omy have hit mar­kets plat­form for alu­minium (see ‘Alu­minium at a min­i­mum’).

In­dia could not re­main im­mune from this in­ter­na­tional tur­moil. Owing to cheap avail­abil­ity of alu­minium in the in­ter­na­tional mar­ket, In­dian com­pa­nies im­ported the metal, mostly from China and West Asia, rather than do­mes­ti­cally pro­duc­ing it. The share of alu­minium im­ports is 56 per cent. As per aai, the share of do­mes­ti­cally pro­duced alu­minium in do­mes­tic consumption re­duced from 66 per cent in 2008 to 44 per cent in Au­gust 2015.

In fact, the sit­u­a­tion has wors­ened. “To­day,it costs US $1,800 to pro­duce a tonne of alu­minium, while its mar­ket price is around US $1,640. This is un­sus­tain­able,” says Ab­hi­jeet Pati, pres­i­dent of aai. This trend is likely to con­tinue till 2016, he adds. On Septem­ber 1, aai rep­re­sen­ta­tives met Prin­ci­pal Sec­re­tary to the Prime Min­is­ter, Nripen­dra Misra, and hinted at re­sort­ing to pro­duc­tion cuts and re­trench­ment if the gov­ern­ment does not im­me­di­ately raise im­port duty on alu­minium from the cur­rent five per cent to 10 per cent to pro­tect the do­mes­tic mar­ket from in­creas­ing im­ports.

“A rise in im­port duty of fin­ished alu­minium would pro­tect do­mes­tic man­u­fac­tur­ers,”says Satish Pai,man­ag­ing di­rec­tor of Hin­dalco. The Union gov­ern­ment is yet to in­di­cate any changes in the im­port duty. “Sec­ondary alu­minium com­pa­nies that de­pend on alu­minium scrap im­ports do not want the du­ties to be raised,”says Balvin­der Ku­mar,sec­re­tary of mom.

Scrap al­ter­na­tive

As the alu­minium cri­sis is set to con­tinue for a pro­longed pe­riod, the ques­tion arises whether it is es­sen­tial to mine or im­port baux­ite when a sur­plus of alu­minium scrap is avail­able in the do­mes­tic mar­ket? Ev­ery year, In­dia im­ports 860,000 tonnes of scrap alu­minium,which is used in the foundry and ex­tru­sion in­dus­tries. Do­mes­tic gen­er­a­tion of scrap is al­most nil. Big com­pa­nies like Vedanta and Hin­dalco have set aside alu­minium scrap for cap­tive us­age.

So the trade is still lim­ited to the un­or­gan­ised sec­tor,ca­ter­ing mostly to the uten­sil and cast­ing in­dus­tries. As of now, there is only one re­cy­cling unit of Hin­dalco in the or­gan­ised sec­tor at Taloja near Mum­bai,with a ca­pac­ity of 25,000 tonnes an­nu­ally. Ac­cord­ing to mom, al­though the plant at Taloja was suf­fer­ing due to want of scrap,the pro­duc­tion from the unit has im­proved re­cently. The plant is now op­er­at­ing at 80 per cent ca­pac­ity,as against its ear­lier ca­pac­ity of 60 per cent. Ac­cord­ing Me­tal­world ed­i­tor, D A Chan­dekar,alu­minium re­cy­cling is less cap­i­tal in­ten­sive than pri­mary metal pro­duc­tion and it in­volves only five per cent of the en­ergy used to make new alu­minium. Ac­cord­ing to In­dia Min­eral Year­book, pub­lished in May 2015, alu­minium is 100 per cent re­cy­clable and there is no loss of prop­er­ties or qual­ity dur­ing re­cy­cling. It also emits five per cent less green­house gases com­pared to pri­mary alu­minium pro­duc­tion.

In­dia pro­duces roughly 0.6 mil­lion tonnes of sec­ondary alu­minium through cap­tive pro­cess­ing of sec­onds and scrap im­ports. By 2019, it will ac­count for 35-40 per cent of the coun­try’s alu­minium consumption, says the In­dia Min­eral Year­book. It has been es­ti­mated that re­cy­cling will help pre­serve 600,000 tonnes of baux­ite ores ev­ery year. As the world bat­tles the plum­met­ing prices, In­dia has the po­ten­tial to emerge as a leader by re­cy­cling alu­minium scrap.

The metal has be­come dif­fi­cult to trade.It costs US $1,800 to pro­duce a tonne of alu­minium, while its mar­ket price is around US $1,640

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