An analyst's take on what Indian aluminium sector will look like in 2016

The global commodity free fall and aluminium price slump played havoc with Indian metal companies in 2015, pushing many to the brink of operational losses and capacity shutdowns. The new year will be crucial to see which way the prices move. Metal manufacturers including those comprising the aluminium maket will also be banking on a pick-up in the domestic economy and some support from the government to fend off cheaper global imports.

Upcoming Trends

Debt restructuring

In 2015, banks invoked strategic debt restructuring for a number of stressed metal manufacturers. Over the next 18 months, banks will look for buyers for these assets. The availability of assets at potentially reasonable valuations may give larger firms the option to buy assets and consolidate their hold on the markets. Private equity firms which run stressed asset funds may also emerge as buyers.

Mine auctions

2016 will see states auction a number of mines for the first time. It is to be watched out for what bidding strategy that metal companies adopt. Global commodity prices are at record lows and Indian metal companies are highly leveraged. This may dent their ability to bid aggressively.

Chinese policy

2015 saw aluminium imports, mainly from China, erode a significant amount of the incremental demand growth in India for these metals. With China continuing with policies to boost exports, the industry remains wary. A further devaluation of the yuan could also make Chinese imports more cost-effective. The industry is now looking for production cuts from Chinese aluminium smelters which could improve the global oversupply situation.

Domestic trade policies

Domestic aluminium industry is pushing for reducing the duty on raw materials in a bid to cut production costs. The industry says India has an inverted duty structure with 5 per cent import duty on alumina as well as CT pitch and 7.5 per cent on aluminium pitch and caustic soda -- all raw material -- which together lead to high production costs at a time prices are driving further south. A senior official from industry body Aluminium Association of India said, "Just by decreasing import duty on alumina, CT pitch and aluminium fluoride by 2.5 per cent, each can help the primary producers save about USD 20 per tonne, which can go a long way in making the industry competitive."

Government spending

Government spending on Make in India and other infrastructure projects could push metal demand growth rates. If all government spending commitments are met, demand growth for metals including that for aluminium could rise significantly.

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