India aluminum producers bank on Chinese demand

India’s aluminium producers are pinning their hopes on China now. Reason for this is that economic activity in China has seen a big rebound following the stimulus package. With the rise in infrastructure work and a good economic growth, demand for aluminium, which so far lagged other base metals is on the rise.

Analysts and industry experts believed that aluminium demand in China will grow 15% in 2010. This is expected to benefit aluminium producers in India, much like steelmakers benefited in the lead up to the Beijing Olympics.

China has hit record output for the third straight month. In November, it produced 1.35 million tonne up 7.5% compared with 1.26 million tonne in October. Chalco has restarted its idle capacity. At the end of October, the company was operating 88% of its primary aluminium capacity in China as against 83% in August.

In India, aluminium production increased 15.8% to 0.73 million tonnes in the H1 of this fiscal. Major producers include Hindalco, Balco and now Vedanta Aluminium, besides state owned Nalco.

In a presentation to investors, Hindalco said that it witnessed its highest ever quarterly production of aluminium during the quarter ended September. It produced 0.275 million tonne of the white metal in the H1 of this fiscal up 8% YoY. The company conceded that early signs of recovery in aluminium prices were visible but said that the large global inventory of 6.5 million tonne was a concern. In 2008, India’s total aluminium smelting capacity was 1.2 million tonnes which is expected to reach 2.24 million tonnes in FY12. A revival in Chinese demand augurs well.

The current average cost of the Chinese smelters is USD 2,000 per tonne and rising, given an increase in prices of inputs like bauxite alumina and coal power. These cost push factors provide a strong floor for aluminium prices. Aluminium prices reached an all time high of USD 3,291 per tonne in 2008 before correcting sharply to USD 1,261 per tonne and have since been on the rise. Just this year, aluminium prices have seen a sharp increase of 48%.

According to LME data, the official price of aluminium stands at USD 2,230 per tonne while 15 month buyer contract quotes at USD 2,368 per tonne.

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