Primary aluminium producing companies are expected to report substantial growth in their sales and profit buoyed by a persistent bullish sentiment on the London Metal Exchange (LME). Indian metal prices follow the LME trend closely.
The upward trend in aluminium prices has egged the metal majors to raise
the price to make a steady buck. The 1997-98 budget has strengthened the sentiment with a rise in protection level to primary producers.
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The reduction in excise duty on caustic soda, a raw material, from 20 per cent to 18 per cent; import duty from 50 per cent to 40 per cent on select raw materials and on project imports from 25 per cent to 20 per cent may help in cost reduction and strengthen the bottomline. Higher customs duty of 20 per cent (10 per cent) on unwrought aluminium will also spur the domestic industry growth as it gets 10 per cent more protection against imported metal. A levy of two per cent additional import duty on imported raw material remains unaltered.
AJS Jhala, vice-president, Hindustan Aluminium (Hindalco), says: With the rise in import duty, the indigenous metal will be cheaper by about Rs 12,000-13,000.
This may spur demand for the indigenous product. The production of aluminium and allied product is estimated at 5.18 lakh tonnes during 1995-96 (4.8 lakh tonnes in 1994-95). Hindalco, the industry leader, expects the output at 1.67 lakh tonnes (1.75 lakh tonnes ), down 4.6 per cent in 1996-97; National Aluminium (Nalco) a rise of 25 per cent in its primary aluminium production to 1.61 lakh tonnes (1.29 lakh tonnes) and Bharat Aluminium Co (Balco) a meagre rise of 1.7 per cent to 0.94 lakh tonnes (0.92 lakh tonnes). Indian Aluminium Co (Indal) has reported the highest rise of 28 per cent to 0.57 lakh tonnes (0.44 lakh tonnes).
Demand for the metal is on the rise and may continue to do so in the near future. This is a far cry from the situation last year when prices ruled downward in the international market. The first half of 1995-96 saw southward movement of prices owing to dumping by CIS countries, which was worsened by slack demand. Aluminium prices started their upward journey in the international market during the second half. The domestic aluminium prices did firm up taking into consideration the international prices and a moderate growth in consumption.
The price decline had the aluminium producers on the defensive.
The industry, in order to deal with a sudden fall in prices, had drawn various plans including product diversification and extending credit limits to consumer to keep inventories to the minimum. Wide price fluctuation within the range of $1620-$2200 per tonne prevailed during the first quarter of 1995-96. At present, the price is hovering between $1624 to $1665 per tonne.
In the first half of 1996-97, the sales income of four major aluminium companies increased marginally by 0.9 per cent to Rs 1985 crore (Rs 1966 crore). Madras Aluminium recorded an increase of 96.8 per cent in sales income, but the companys operation was closed for a major period during the first half of 1995-96.
The operating profit of four companies declined by 7.2 per cent to Rs 821.2 crore (Rs 884.8 crore). Gross profit declined by 4.7 per cent to Rs 736.4 crore (Rs 772.4 crore). Net profit rose by 5.1 per cent to Rs 487.6 crore (Rs 464.2 crore). Operating profit margins of the four companies declined to 41 per cent (45 per cent), gross profit margin to 37 per cent (39 per cent). However, the net profit margins rose to 25 per cent (24 per cent).
Madras Aluminium, managed by the Sterlite Group, improved its operation. The steps taken by the management, like reduction in electricity consumption and optimum product mix, seems to have paid dividend.
The aluminium producers had complained of the heavy excise duty. The government, taking note of the fact, made appropriate reductions in the recent budgets. Lower duties on raw materials may lead to a fall in input cost and result in lower operational cost. The reduction in duties on project imports from 25 per cent to 20 per cent is also likely to help companies in reducing overall capital costs. This power intensive industry incurs a huge power and fuel bill. Technology can play a vital role in curtailing these expenses.
Beside this, the metal is finding new uses and is preferred more when compared to other metals due to its longevity and efficiency. Other qualities, like low weight and anti-corrosiveness, may also spur demand further.
The industry expects a hefty growth in demand for aluminium products.
It is estimated around 7.2 lakh tonnes by 2000 and 11.6 lakh tonnes by 2005. Abundant natural resources and cost efficiency should help the industry compete in the international market if it tones up technology upgradation and beefs up marketing strategy. The metal has a wide range of applications from aircraft building to packaging and electrical equipment. The two major sectors, transportation at 19 per cent and electricity at 37 per cent, account for 56 per cent of the total offtake. Packaging and others account for the rest.
As such the industry players find it necessary to increase the production capacity through various expansion plans.
Nalco has envisaged a Rs 3,964 crore expansion plan in two phases. In the first phase, it plans to expand the capacity of alumina plant from eight lakh tonnes to 15.7 lakh tonnes.
Beside this, the company plans to double the capacity of bauxite mines from 2.4 million tonnes to 4.8 million tonnes. The second phase is expected to see a rise in metal production capacity from 2.18 lakh tonnes to 3.45 lakh tonnes and power generation capacity by adding two units of 120 mw each.
This is expected to increase the power generation capacity of Nalco to 920 mw from the current 720 mw.
The Disinvestment Commission has shifted Balco from core category of PSUs to the non-core group for the purpose of disinvestment.
The commission feels the company may lose its market share from 17 to 12
per cent as all aluminium majors are adding capacities in the metal sector. Balco plans to set up electrolytic capacitor foil plant at its Bidhanbag unit in West Bengal and a new aluminium cold rolling mill at Korba (MP) at an estimated cost of Rs 35 crore and Rs 140 crore respectively. Hindalco plans to set up a Rs 5,000-crore integrated aluminium complex in Orissa to produce five lakh tonnes of alumina metal and one lakh tonne of aluminium metal per annum.
Production capacity is expected to be raised further to 10 lakh tonnes and two lakh tonnes respectively. This project will have a back up support of a 500 mw power plant. An additional Rs 1,250 crore will be spent on the expansion of value-added products in Renukoot.
The Renusagar unit will have two more units of power plant with
investment of Rs 500 crore.
The planned expansion of capacities presage a rise in demand for aluminium from the user sectors.