Aluminium value chain

ComTraCommodity - Aluminium

Team- TradegurusTeam members:-Suryanarayan Panda-Anmol Garg-Shubham Badkur Jain-Harshit Vyas

MBA IB 2014-16 BatchIndian Institute of Foreign Trade

Introduction

Value Chain of Aluminium

Bauxite and Aluminium Production in India

India’s Exports and Imports of India

Domestic Trading Exchange

Domestic Production Analysis

Domestic Production and Demand Drivers

Major Global Bauxite and Aluminium Producers

Leading Global Importers and Exporters

Analysis of International Trade

Global Trading Exchanges

Historical Price Trend

Fundamental Analysis

Global Production Analysis and Drivers

Commodity Balance Sheet Framework

Agenda

INTRODUCTION

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Aluminium

Wonder Metal

Most Abundant Metal in

Earth

Fastest growing metal in 30 years

Properties

Lightweight

Ductile

Malleable

Relatively Soft

Good thermal and

electrical conductivity

Corrosion Resistant

Value Chain of Aluminium

Bauxite Alumina Aluminium

Raw Material Intermediate Product Final Product

Mined from few metres below the Earth

Alumina is extracted from bauxite through refining processes

Refined alumina transformed into

aluminium in smelters. Characterised by high electricity and carbon

usage

Extrusion Ingots

Sheet Ingots

Foundry Alloys

• Aluminium billets• Civil engineering

design

• Packaging • Building• Automotive and

Transport• General Engineering

• Cast in different shapes

• Wheel Rims• Chassis and

suspension components

• Electrical components

Bauxite$45-50 /tonne

Alumina$310-$320/tonne

Aluminium$2025-2500/tonne

Value Addition at Each Step

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Source:Indian Minerals Yearbook 2012, Indian Bureau of Mines

Bauxite Production Production in Tonnes

State/Year 2009-10 2010-11 2011-12

Chhattisgarh 1687069 2109949 2365304

Goa 31050 100900 84700

Gujarat 2687306 938574 843497

Jharkhand 1670577 1855993 1830850

Karnataka 123316 64643 83019

Madhya Pradesh 1056847 616319 617146

Maharashtra 1985006 2133736 1937898

Odisha 4879580 4856808 5045888

Tamil Nadu 3342 45898 69092

Bauxite Producing Areas of India

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

State/UT

2009-10 2010-11 2011-12 2012-13 (Up to January, 2013)#

Quantity (in tonnes)

Value (Rs. In crore)






Value (Rs. in crore)

Odisha 8,52,009.00 7,466.95 9,56,937.00 10,187.63 9,98,474.00 11,497.45 8,38,247* 10,366.48*

Chhatisgarh 2,68,425.00 2,950.00 2,55,298.00 3,327.00 2,45,654.00 3,114.00 2,06,053 2,761.00

Uttar Pradesh 3,99,198.00 2,822.72 4,09,958.00 3,132.28 4,18,268.00 3,812.28 1,92,468* 2,021.51*

Aluminium Production in India

Odisha Chhatisgarh Uttar Pradesh0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2009-20102010-20112011-2012

(In tonnes)

• Odisha is the largest bauxite producer of the country, having the country’s only PSU (NALCO) involved in the production of Aluminium

• Panchpatmali mines in Koraput are Asia’s largest bauxite mines

YearProduction (Quantity in tonnes; Value in

Rs.'000)

Quantity Value

2009-10 14,80,568 12,37,71,762

2010-11 16,21,033 16,28,44,955

2011-12(P) 16,54,156 18,36,57,146

State Wise Production

Annual National Production

Source: Press Information Bureau, Government of India, Ministry of Mines, March 2013

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Import/Export (By Value in USD) 2009 2010 2011 2012 2013

Imports 1,417,460 2,063,534 2,834,980 3,081,740 3,177,639

Exports 979,112 1,328,025 1,423,415 1,579,450 2,078,003

India’s major aluminium product imports include: Aluminium waste and scrap Aluminium plates, sheets

and strip, of a thickness exceeding 0.2mm

Aluminium foil Aluminium bars, rods and

profiles Aluminium tubes and pipes

Top 5 countries (by value) for India for importing Aluminium and its products:China, United Arab Emirates, Saudi Arabia, United Kingdom & Oman

India’s Exports and Imports of Aluminium

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• The Multi Commodity Exchange of India Limited (MCX) is a India-based state-of-the-art electronic commodity futures exchange that facilitates online trading, and clearing and settlement of commodity futures transactions, providing a platform for risk management.

• The Exchange, which started operations in November 2003, operates within the regulatory framework of the Forward Contracts (Regulation) Act, 1952.

•Indian aluminium industry consists of four primary producers: Hindalco, NALCO (a Government of India enterprise), BALCO and Vedanta Aluminium are the four major aluminium producing companies in India.

Multi Commodity Exchange of India Limited (MCX)

Source : http://www.mcxindia.com/

Domestic Trading Exchange1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Indian Aluminium Production Analysis

• Smelters operating below capacity due to unavailability of raw material on time

• Denial of environmental clearances for new mines

• Land acquisition problems

Non Availability of Bauxite

• Major Indian metal producers waiting for global price recovery

• Decline in domestic coal supplies

• Integrated companies not willing to spend on imported coal

Low global Aluminium

Prices

Key Factors Influencing Production Levels

Vedanta not allowed to mine from Niyamgiri hills

Coal shortages disrupting electricity generation

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Key Domestic Production Drivers

Electricity and Consumer Durables• Bulk of aluminium is used in overhead conductors

and power cables involved in electricity generation, transmission and distribution

• Use in consumer electronics for backing plates in TV, tablets and consumer electronics

Building and Infrastructure• Consumption in this sector expected to grow at a

CAGR of 18-20%• Demand for enhanced quality driving use of

Aluminium extrusions to construct stadiums, residential and shopping centres, bridges etc.

Transport and Packaging Industry• Higher production of automobiles, railway coaches

and increasing urbanisation• Rise in demand for aluminium in food packaging,

beverage industry and pharmaceutical

Growth of solar and wind energy is leading to rise in Aluminium consumption

Current Indian production is sufficient for the current demands

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Demand Drivers Analysis•Low Per capita consumption in India•High demand from user industries like power, infrastructure and transportation•General shift in the automobile industry from steel to aluminium

Demand Drivers• Manufacturer’s willingness to

substitute other metals for Aluminium in their products drives up the demand

• Niche industries like Aerospace industries are increasingly using aluminium in their usage

Substituting Trends

• Low per capita consumption of aluminium in India is driving the growth of Aluminium

Per capita consumption

• Growing economy have been instrumental for the demand of aluminium in power and other sectors

Economic Growth

• The price advantage that aluminium has over copper means that aluminium wins more market from the red metal

• Aluminium has been replacing copper as the medium for electricity conduction in cables

Price Advantage

Per capita aluminium consumption in Kilograms

Key Domestic Demand Drivers

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Major Bauxite Producing Countries

Country Production (2013 production in thousand metric tons)

Australia 77000

China 47000

Brazil 34200

Indonesia 30000

India 19000

Guinea 17000

Jamaica 9500

Russia 5200

Kazakhstan 5100Australia China Brazil Indonesia India Guinea Jamaica Russia Kazakhstan

0

10000

20000

30000

40000

50000

60000

70000

80000

Production 2013 in Thousand tonnes

Production 2013 in Thousand tonnes

Highlights• Australia is the largest producer of Bauxite in the world•India is ranked 5th in terms of Bauxite production and 7th in terms of Aluminium production

Source: www.world-aluminium.org/statistics

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Major Aluminium Producing CountriesCountry Production in

Thousand Tonnes(2013)

USA 1950

Argentina 460

Australia 1750

Bahrain 890

Brazil 1440

Canada 2900

China 21500

Germany 400

Iceland 825

India 1700

Mozambique 560

Norway 1200

Qatar 600

Russia 3950

South Africa 820

United Arab Emirates 1800

Other Countries 4650

Key Highlights•India ranks 7th in global aluminium production.•Per capita aluminium consumption in India is 1.3 Kg Vs. global average of 8 Kilograms annually

Per capita aluminium consumption in Kilograms

Source: www.unctad.org

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

ImportersImported Quantity (in tonnes)

2010 2011 2012 2013World 4,14,93,310 4,40,93,219 3,56,65,679 4,19,83,461Germany 45,07,91,128 48,63,66,430 37,72,13,997 44,78,45,282United States of America 41,68,56,033 40,65,17,984 35,52,99,267 40,65,74,383China 24,91,07,073 24,51,52,325 21,35,77,149 22,56,02,852Japan 22,77,19,865 23,12,98,154 18,49,12,110 19,90,11,585Netherlands 20,48,21,508 22,12,54,791 16,38,40,295 19,40,96,235

Imported value in 2013 in '000 USD0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

17,281

15,689

8,7057,679

7,489

Germany United States of America China Japan Netherlands

Leading Global Importers of Aluminium1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

ExportersExported Quantity (in tonnes)

2009 2010 2011 2012 2013

World 57,92,689 77,71,712 89,80,265 73,18,755 74,70,218China 4,79,274 7,51,379 9,39,774 8,29,900 9,00,975Germany 6,47,442 7,95,184 9,07,745 6,97,944 7,31,743United States of America 4,21,978 5,48,242 6,53,644 5,68,851 5,86,618Canada 3,33,744 4,61,299 5,00,000 3,82,058 3,83,130Netherlands 2,92,284 4,01,866 4,52,548 3,25,825 3,35,792

Exported value in 2013 in '000 USD0

5,000

10,000

15,000

20,000

25,000

20,043

16,278

13,050

8,5237,470

China Germany United States of America Canada Netherlands

Leading Global Exporters of Aluminium

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Analysis of International Trade of Aluminium

Share in value in world's exports, % in 2009





0

5

10

15

20

25

Exports of Vehicles

Germany Japan United States of America Mexico

Germany

• Imports are driven by the thriving German automobile industry

• Exports of German automobiles is rising especially due to growing demand in developing countries

USA

• Car and truck makers in USA are using more aluminium in their vehicles than before

• Aerospace OEMs as well as renewed growth in construction and housing is also driving imports

China

• World’s largest consumer of aluminium

• Transport and construction industries jointly account for over 50% of total aluminium consumption

• Large production of consumer and industrial goods

Japan

• Imports aluminium structures and unwrought aluminium mainly from China

• Automobile industry and construction sector are the main consumers

• Imports have declined due to reduction in production from electronics and automobile industry

Top Importers

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Analysis of International Trade of Aluminium

China

• High prices in LME have encouraged exports

• Tax rebates on exports of some aluminium items has encouraged exports

• Largest producer of aluminium

Germany

• Primarily exports to European Union countries

• Austria is the key importer of scrap metal, rods, sheets and profiles.

USA

• 40% of exports comprise of scrap metal to China

• Aluminium articles like plates, sheets and bars were the major export items

• Key export countries were Mexico and China

Canada

• USA is the largest export destination

• Exports comprise mainly of scrap metal, metal alloys and crude metal

Exported value in

2004

Exported value in

2005

Exported value in

2006

Exported value in

2007

Exported value in

2008

Exported value in

2009

Exported value in

2010

Exported value in

2011

Exported value in

2012

Exported value in

2013

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

Exports of Aluminium waste and scrap Unit : US Dollar thousand

Trade of scrap and waste aluminium is on the rise post 2008

Exports from UAE have been rising steadily over years with exports to over 120 countries currently

Top Exporters

• Global recovery is driving the demand for grey metal

• Rise of prices after a steep decline post 2011 has resulted in normalisation of inventories across smelters worldwide

• Increasing activity in transportation and construction industry is responsible for rise in aluminium consumption

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Major Global Trading Exchanges

•The London Metal Exchange (LME) is the oldest and largest market for non-ferrous metals• It was founded in the year 1877 and has over US$ 11 trillion of metal contracts traded in 2010•It is the biggest Futures and Options traded exchange for Base and other metals

Price of Aluminium on London Metal Exchange

Services offered for Aluminium Trading• Contracts and Trading•Transparent Pricing and Price Realization• Risk Management Tools•Warehousing and Delivery•Branding•Regulation•Arbitration

London Metal Exchange

Source:http://www.lme.com/metals/non-ferrous/aluminium/#tab2

Contract Metal Lot Size

Price fluctuation

Physical Aluminium Ingots 25 tons $0.01

Futures High Grade Primary Aluminium

25 tons $0.50

Options High Grade Primary Aluminium

25 tons $0.01

Contract types and their details on LME

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Major Global Trading ExchangesNew York Mercantile Exchange•The New York Mercantile Exchange is a commodity futures exchange established in 1872 and owned and operated by CME Group of Chicago• It is the third largest Aluminium Trading exchange in the world

•The Shanghai Futures Exchange was formed from the amalgamation of the Shanghai Metal Exchange, Shanghai Foodstuffs Commodity Exchange and the Shanghai Commodity Exchange in December 1999•The exchange was ranked 13th among world derivatives exchange by the Futures Industry Association in 2012, with total volume of 365.3 million contracts, up 18.5 percent from a year earlier

Shanghai Futures Exchange

Mar/12 Apr/12 May/12 Jun/12 Jul/12 Aug/12 Sep/12 Oct/12 Nov/12 Dec/12 Jan/13 Feb/13 Mar/130

200

400

600

800

1000

1200

1400

1175 11801145

1035

900 880

740

Aluminium Spot prices on SME

Aluminium Spot prices on SME

Aug/13

Sep/13

Oct/13

Nov/13

Dec/13

Jan/14

Feb/14

Mar/14

Apr/14

May/14

Jun/14

Jul/14

0.7 0.72 0.74 0.76 0.78 0.8 0.82 0.84 0.86 0.88 0.9

0.82

0.799

0.817

0.785

0.775

0.77

0.765

0.775

0.805

0.78

0.815

0.875

Price of Spot Aluminium in $/lb in NYMEX

Price of Spot Aluminium in $/lb

Source:http://www.metal.com/Upload/en//publication/files/1407235546_1925402961.pdf

Source:http://www.kitcometals.com/charts/aluminum_historical_large.html

$/lb

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Year 2014 2015 2016 2017 2018

World Price (in US$/tonne)

1,810.8 2153.8 2283.3 2300.0 2350.0

Price Forecast of Aluminium

Historical Price Graph for Aluminium• Aluminium averaged 1751.69 from

1989 until 2014, reaching an all time high of 3271.25 in July of 2008 and a record low of 1022.70 in November of 1993 (All prices in $US/tonne)

• Price of aluminium declined considerably to approximately 1200-1300 $US/tonne in 2008 due to the global crisis and recession.

• It recovered since then but due to the sluggish growth around the world the recovery has been slow

• Aluminium prices are expected to rise in future because of the increasing demand of aluminium in the world.

Analysis

Growth Prospects of Aluminium

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Fundamental Analysis of AluminiumSupply side Analysis•World production of aluminium has increased with a steady pace during the recent years •Demand for aluminium has been very high in the construction and the automobile sector

Supply Drivers

• Transportation is the most important sector for aluminium as it is increasingly replacing iron and steel in cars, trucks and airplanes

Transportation

• Bauxite is the raw material used to make aluminium

• The electrolytic process of turning alumina into aluminium is very power intensive – one of the highest in metals - and so energy is a very big cost driver

Cost Factor

• Aluminium beverage cans and food containers are made of aluminium foil and their usage is growing

• Non-residential construction like office buildings furniture etc are growing at a small rate

Packaging

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Global Aluminium Production Analysis

• Lots of power required in smelters for converting Alumina to Aluminium

• Main driver for production from Middle East and North West China

Cheap Power

• High bauxite exports from Australia and Indonesia

• China produces nearly 1/3rd of its Aluminium from imported bauxite

Bauxite Availability

Key Factors Influencing Production Levels

Abundant gas and gas based power available in Middle East

Greenfield Projects coming up in NW China due to cheap coal

Smelter closures in Europe due to ‘Carbon Tax’ leading to declining production

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Key Production DriversTransport Sector is the main consumer• Thrust towards light weight bodies to increase

mileage• US EPA guidelines to reduce vehicle exhausts by

reducing weight• Companies emphasising on lightweight railway bogies

to reduce environmental impact and high quality exterior finish

Construction and Electrical Industry • Corrosion resistance, Recyclable, Lightweight and

Durable • High copper prices prompting switch to aluminium in

electrical and industrial components• Primary building material in LEED buildings and

Sustainable Buildings

Packaging Industry • Rising use of aluminium foil in food preparation,

insulation and electronics• Lightweight package creation by merging of

aluminium foils with flexible films

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Total for Q1 2010 to Q2 2014: 212,195 thousand metric tonnes of aluminium

2011 Q4 2012 Q2 2012 Q4 2013Q2 2013 Q4 2014 Q1 2014 Q2

World Demand 11,567 11870 12171 12540 12910 12774 12,890

North America 1,277 1,202 1,247 1,257 1,188 1,158 1,143

East and Central Europe 1,104 1,082 1,071 1,026 940 924 937

West Europe 1,005 903 881 879 892 853 870

Asia 5,100 5,524 5,775 5,928 6,439 6,340 6,338The World Demand Data For Aluminium

Source - www.world-aluminium.org

Supp

ly

Global Commodity Balance Sheet Framework Unit- Thousand Metric Tonnes

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Aluminium value chain

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