Aluminium makers gear up to counter China's share in downstream business

Aluminium producers in the country are rebooting strategies to take on the growing clout of China's products in the downstream market. With imported Chinese products now owning the second largest market share in the country in alumiunium rolled products after Hindalco, the crisis has only deepened for the domestic manufacturers.

The market for rolled products in the country is estimated at 0.4 million tonne a year. Hindalco is the market leader with 46 per cent share but Chinese imports rank next with 21 per cent share of the pie. As China sits on a huge capacity surplus of extrusions and rolled products, it is increasingly making inroads into the downstream aluminium markets with a focus on India where consumption is on an uptrend. Exports of downstream aluminium products by China to all countries that stands at six million tonne (mt) now is slated to rise to eight mt by 2019.

Satish Pai, managing director designate, Hindalco Industries said: "China's producers are getting aluminium at lower price primarily on subsidies on power and logistics extended by their government. Their government has allowed the aluminium industry to grow and become an export powerhouse. Chinese producers have also moved up on quality. Indian aluminium producers have to step up their quality and be more customer centric. Then, government has to chip in with support on power and logistics. Power cost is steep as coal is one of the highly taxed commodities in the country. In downstream business, there is need for consolidation as there are too many small players in this space."

Indian aluminium producers through the Aluminium Association of India (AAI), have been clamouring for hike in import duty and imposition of safeguard duty to ring fence domestic makers from the onslaught of imports from China and West Asia. AAI has also demanded cut in railway freight on bauxite and alumina by changing their classification.

Imports of aluminium and finished products by India has risen from 0.88 mt in FY11 to 1.67 mt in FY16, a CAGR (compounded annual growth rate) of 14 per cent. In FY16, Indian producers had 49 per cent share in domestic sales with the balance being met by imports.

Analysts say the critical issues to be negotiated by aluminium producers are the ones on cost competitiveness and better capacity utilisation.

"To tackle the challenge posed by cheaper Chinese imports, Indian producers need to be cost competitive which can be achieved by better capacity utilisation (which in turn will help reduce fixed costs), reducing energy consulting and cost and most important sufficient raw material supply at reasonable price", said Pukhraj Sethiya, associate director (mining and metals), PricewaterhouseCoopers (PwC).

"A short-term relief from the government can be in the form of import tariff or minimum import price, however, in longer run, to make Indian aluminium industry sustainable, government needs to ensure high grade bauxite resources are auctioned so that aluminium producers can secure raw material. Also, energy source need to be provided at reasonable cost", he added.

Says an industry source: "The aluminium producers should strengthen the downstream industries to increase the scale-up of operations and invest in the upgradation of technology to reduce cost. Immediate implementation of safeguard and anti-dumping duty is required to counter imports from China, Vietnam and FTA countries."

He said, ecosystems like aluminium parks, a successful model in West Asia and China, can help save $100 a tonne in energy, freight and inventory costs.