January 2020

Aluminium

For Internal Use Only – Not For External Distribution

● Global Demand-Supply: Improving balance led by rationalized capacity addition

● Prices : To remain under pressure due to weak global demand

● Domestic Demand-Supply: Capacity additions to pause; players to focus on downstream products

● Profitability : To fall in fiscal 20 led by falling realizations amid surging power cost
Dashboard for Aluminium 2020 and 2021
CY2018 CY2019 E CY2020 P CY2021 P

Global World 2.5-3.5%

World 4.5% World ~0% World 2.5-3.5% Global Aluminium demand to moderate to ~3% through 2020 and 2021 led by demand moderation
Demand China 3-4%
China 5% China 0-1% China 3-4% in China
Growth

Closure of Slow pace of

Global China cuts, Slow pace of ~4 MT cut in 2018 and 2019 in China apart from winter shutdown; Slowdown in capacity additions to
inefficient additions
Supply Rusal sanctions additions auger will for the sector
capacities

Utilisation ~84% ~82% 83-85% 84-86% Utilisation witnessed a dip in 2019 on the back of supply disruptions as well as weak demand; to rise
levels in 2020 led by pickup in demand, slowdown in capacity additions and fall in inventory levels

9M 2019 average at 1804 $ / T. Despite fall in production and plummeting inventory levels
Global 2,109 $/T 1,792$/T 1,700-1,900 $/T 1,800-2,000 $/T
prices remained low on the back of slowing demand and fall in raw material prices
Prices (LME)

FY2018 FY2019 FY2020P FY2021P

Domestic
Demand ~4% ~5% (6)-(8)% 5-7% Primary aluminium demand to witness a steep fall in fiscal20 led by replacement of primary
Growth aluminium by secondary metal in domestic market post introduction of scrap import quota by China

Utilisation Utilisation levels to fall in fiscal20 on the back of disruptions caused to fall in coal supply to domestic
91% 90% 88-89% 90-92% smelter. Utilisation levels to improve in the longer run led by commissioning of line 4 at Jharsuguda
levels
by Vedanta and improved bauxite and coal linkages for all players

Domestic Margins to witness severe contraction in fiscal20 led by surge in power costs on the back of
9.2% 10.2% 3.5-4.0% 6.5-7.0%
Profitability poor coal supply by Coal India as well as rise in extraordinary expenses (incurred for repair and
EBIT maintenance of facility due to damages caused by cyclone Fani)
Aluminium – Global Demand & Supply

4
Global aluminium demand to grow at ~3 % through 2024; to witness
slowdown in near term
Global Demand Trend
(mn tonnes) Demand Growth
3.8% CAGR 3-3.5% CAGR CAGR CAGR
2014-2019 2019-2024
(MMT)
90.0
Global 3.8% 3-3.5%
80.0 76.3
67.4 69.6 India 4.7% 4-6%
70.0 62.5 65.5 65.4
57.1 59.7
60.0 54.2
Japan --1.2% 1-2%
50.0
40.0
China 5.4% 3-4%
30.0
20.0 1.4% 1-2%
EU
10.0
- 3.4% 2-3%
2014 2015 2016 2017 2018 2019 E 2020 f 2021 f 2024 f USA
China EU US India Japan RoW

E: Estimated, P: Projected
Source: Industry, CRISIL Research

 Global aluminium demand to grow at a slower pace of 3-3.5 per cent CAGR over 2019 to 2024
− In China, government push for electric vehicles is expected to drive demand growth for primary aluminium over the next 5 years. The largest end use sector-
construction is expected to witness a moderate growth on account of real estate policy tightening. Consequently, compared to last 5 years aluminium demand in
China is expected to slowdown to 3-4% CAGR.
− Demand from Euro zone is expected to have bottomed out in 2019 and is expected to revive going forward, growing at 1-2% in the long term
− Demand from the US is projected to grow at a 2-3% CAGR through 2024, driven by increasing aluminium intensity in the auto and construction sector
− India is expected to be the fastest growing large consumer of aluminium in the world, driven by growth in power cables and conductor, alongside growth in
automotive and consumer durables sector (lowest penetration levels globally)
Global utilisation rates to improve gradually on the back of rationalised
capacity additions and closure of inefficient capacities
Global Supply Trend
Capacity 2.5-3% CAGR Production Growth
Capacity 3% CAGR
CAGR CAGR
(MMT) Production Production 3.5-4% CAGR (%) 2014-2019 2019-2024
3.3% CAGR
100.0 87-88% 90%
90.0 84% 84% 83-84% 84-85%
82% China 4.7% 4-5%
80.0 82% 82% 85%
70.0 80% RoW 1.8% 2-3%
60.0
50.0 75%
40.0 82.4 87.8
73.4 75.1 76.6 77.7 79.9 76.5
70.1 63.4 64.3 63.5 67.0 69.7 70% Capacity Growth
30.0 57.7 59.9
20.0 65% CAGR CAGR
10.0 2014-2019 2019-2024
0.0 60%

2024 f
2019f

2020f

2021f
2015

2016

2017

2018
China 4.2% 3-4%

Capacity Production Utilisation rate RoW 1.7% 1-2%

E: Estimated, P: Projected
Source: Industry, CRISIL Research

 Prudent additions, rationalisation of capacity to result in improving global utilisation rates through 2024
− Close to 10-11 mn tonnes of capacity additions expected over the next 5 years. China and Russia are expected to drive capacity additions.
− China is expected to add around 7-8 MT by 2024, compared to 12 MT (net addition of ~8MT) over past five years.
− Norsk Hydro and Rusal have already announced ramp-up of capacities that were curtailed due to the downturn in prices in 2016.
− However, cut down in old capacities to the tune of 1.5-2.0 MT will limit overall capacity addition to 10-11 MT.
− Middle east and India are also adding capacities. Nalco expected to add 600kt over the next five years.
− Thus, going forward, we expect operating rates to improve gradually on the back of slow pace of capacity additions and moderate demand growth.
LME Aluminium prices crashes by 15% in 2019; to revive in the longer run
led by pickup in demand and rising utilization levels
Annual Price Trends (LME)
($ /tonne)
2,200

2,100 Chinese demand

deceleration led to Demand growth
2,000 Muted aluminium moderation
market surplus
demand in
1,900
Eurozone and
1,800 Japan 000 Winter capacity cut
Rising carbon and Demand revival;
1,700 caustic soda cost in China to curb
pollution rising utilization
1,600 levels

1,500
2014 2015 2016 2017 2018 2019 2020F 2021F

Quarterly Price Trends ( LME)

($ / tonne)
2,400 2257
2155
2,200 2,091 2055
2,011 1968
1,911
2,000 1,850 1859
1794 1761 1753
1,711
1,800 1,622
1,571
1,515
1,600
1,400
1,200
1,000
Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4
2016 2017 2018 2019

Source: CRISIL Research

Weak demand pushes global premium lowers; supply deficit pushes
premiums higher in China
($/tonne)
450
400
350
300
250
200
150
100
50
0
-50
Mar-16

May-16

Jul-16

Mar-17

May-17

Jul-17

Feb-18
Mar-18

May-18

Jul-18

Mar-19

May-19

Jul-19
Apr-16

Apr-17

Apr-18

Apr-19
Feb-16

Oct-16

Feb-17

Oct-17

Oct-18

Feb-19

Oct-19
Jan-18
Jan-16

Jun-16

Aug-16
Sep-16

Nov-16
Dec-16
Jan-17

Jun-17

Aug-17
Sep-17

Nov-17
Dec-17

Jun-18

Aug-18
Sep-18

Nov-18
Dec-18
Jan-19

Jun-19

Aug-19
Sep-19

Nov-19
Dec-19
MJP SMEP
Source: CRISIL Research, SME, LME

 Production cuts and falling inventory levels pushes premiums lower in China
− Shanghai Metal Exchange Premiums have historically been higher than Major Japanese Port Premiums due to higher demand growth in recent years
− However, slowing demand amid continued rise in capacity as well as production led to a steep fall in 2018
− In fact SME prices fell below LME prices for the first time since 2011 after inventory levels in Chinese ports and warehouses surged
− Supply deficit in 2019 on the back of capacity cuts in China drove premiums higher
 MJP premiums remains under pressure as demand outside China continue to snail
− MJP premiums which averaged between $200-400/ tonne between 2012-15 fell below $100/ tonne led by weak demand and rising exports from China
− Premiums have remained largely stable and averaged around $100/tonne over the last 4 years despite production cuts in the region due to weak demand scenario
− Even in 2019, production cuts failed to lift premium as demand witnessed a degrowth in the region. On the other hand SMEP surged above the $200 / tonne mark
Key factors governing price forecasts in near term
Particulars
Demand-Supply: Global market to
be in deficit in 2020 as well
Raw material prices : Fall in global
Alumina and Carbon prices
Supply disruptions: Capacity cuts
to continue; expect severe winter
cuts in Q4 2019
Energy costs: Rise in coal prices led
• Coal and Oil prices eased in 2019 after a spurt in 2018. To remain tepid in near term, which will
to higher production costs in 2018, to
ease in 2019 and 2020
Chinese macroeconomic scenario: •
Infra spending to improve
Tariff wars: US-China deal to help
revive global demand and support
prices
China scrap policy: Stricter scrap
policy to lead to lower global prices
Details Impact on industry
• Global aluminium market was in a deficit of ~1.2 and ~1.9 mt in 2018 and 2019 respectively; New
capacity additions as well as ramp up in production will limit deficit in 2020 to less than 0.5 mt in
2020
• Alumina, Caustic Soda, Bauxite and Carbon product prices fell steeply in 2019 after a surge in the
previous year; to remain subdued in 2020
• Dilution of winter cuts led to less than anticipated price rise in Q42019. However, higher production
cuts are expected going into Q1 2020 leading to pickup in prices
lead to improved profitability for the industry
Pick up in infra spending by the Chinese government to aid demand growth in the near term. To
aid recovery in prices as well.
• Partial resolution of tariff wars between US and China has helped prices recover marginally after
falling below $1700 in October 2019. Rollback of previous tariffs will lead to improvement in overall
economic scenario aiding demand growth
• Stricter scrap import policy to lead to global scrap aluminium surplus putting pressure on global
prices and lifting SME Aluminium prices as witnessed in the last few months
Favourable Neutral Unfavourable
9
Aluminium – India Demand & Supply

10
Domestic demand to witness a decline in fiscal20; witness revival in
the medium term
Domestic demand outlook Segment wise demand breakup (FY19)

6.5 CAGR 3-5% CAGR Consumer Others, 9%

(MMT)
3.5 20% Durables, 6%
16%
3.0 15% Packaging,
6%
2.5
4-6% 10%
6% 5%
2.0 4%
2% 3-5% 5% Automotive,
1.5
10% Electricity,
-3% 0%
1.0 (6)-(8)% 55%

0.5 -5%
1.9 2.0 2.4 2.4 2.5 2.6 2.5 2.7 3.1
0.0 -10% Building &
FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY20 FY21 FY 24F Construction,
14%

E: Estimated; P: Projected Source: CRISIL Research

 FY20: Domestic Aluminium demand to witness steep fall in FY20 to the tune of 6-8% on-year led by surge
India- End user demand outlook

FY14 to FY19 FY19 to FY24

CAGR CAGR in scrap usage and weak downstream demand. Global (ex-China) supply glut of scrap post implementation
Power 7.5-8% 3-5% of scrap import quota in China led to fall in scrap prices leading to replacement of primary metal

Construction 4.5-5% 4-6%  FY21: Demand to witness revival next year led by pick-up in downsteam industries like auto, power and

Automobile
construction. Quota limits in China will remain a key monitorable as further decline in quota will keep
6-7% (2)-0%
domestic primary metal demand under pressure.
Cons.
7-8% 7-9%
Durable
 FY24: In the long term demand growth to rise by 3-5% through 2023-24 on the back of
Aggregate
6.5% 3-5% − Continued focus on rural electrification and inter-state transmission
− Rising substitution over competing materials in Auto and Construction sector
− High growth in consumer durables and packaging sector due to rising incomes and lifestyle change
As ramp-up of commissioned capacities take place, Nalco’s expansion
expected to come up in 2023-24
Player-wise aluminium smelter effective capacity additions in India Player-wise aluminium production
(mmt)
Commissioning 4.0
of Hindalco’s Commissioning of Vedanta’s Expansion of Nalco 3.7
Mahan and Jharsuduga II smelter
3.5 3.4
Aditya Smelter

Commissioning of Balco’s 3.0 2.9

('000 tonnes)
5.0 Korba II smelter 4.7 2.0
2.5 1.7
4.5 4.1 4.1 4.1 4.1 4.2
1.1 1.2
4.0 3.7 0.5 0.5 0.5 0.5 0.6
3.3 2.0
3.5 0.5
3.0 2.7 0.5
1.5 0.4 0.4 0.4
2.4
2.5 0.5 2.4 2.4 2.4 2.4 2.4 2.4
1.8 0.5 2.0
2.0 1.6 1.0
0.5 1.1
1.5 0.9
1.3 1.3 1.3
1.0 0.7 0.5
0.5 1.0 1.1 1.2 1.3 1.3 1.3 1.3 1.3 1.3 1.3
0.6
0.0
0.0
FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 f FY 21 f FY 22 f FY 23 f FY 24 f FY 17 FY 18 FY 19
Hindalco Vedanta Nalco Vedanta Nalco Hindalco

Source: CRISIL Research, Company Report Source: CRISIL Research, Company Report
 Incremental capacity of over 2 mn tonnes commissioned in 2014-15, ramp-up still under way
− At Jharsuguda-II, out of four lines, line-1 and 2 were fully ramped up in FY2018. In Line-3, all the pot lines were made operational by Q4 FY2019. Line-4
to be commissioned post ramp up of Lanjigarh refinery.
− Nalco has announced a capacity expansion of 0.6 million tonne at their aluminium smelter in Angul, Odisha which is expected to come up in 2022-23
− It includes a new brownfield smelter of 0.5 million tonnes and debottlenecking of existing potlines resulting in an incremental capacity of 0.1 million
tonnes per annum
Threat to key export markets limited
FY14 FY19
FY14 FY19 5% Europe 29% FY14 FY19
19 KT 558 KT
20% North America 16% 51% Far East Asia 21%
83 KT 308 KT
206 KT 408 KT
• Continued shutdown of polluting
smelters led to huge deficit
• India faces tough competition from
• Caters to the market of Korea and
• Regional deficit of over 1 MT. Largely Rusal, Hydro and ME players
Japan where Chinese products find
catered by Russia and ME. • Higher premiums makes it a lucrative
lower acceptance.
• Indian exports driven by Hindalco market
• Lower premiums limits competition.
which supplies to its subsidiaries – • Continued closure of older units to
Novelis and Aleris. increase regional deficit.
• Unlikely to be impacted.

FY14 FY19
FY14 FY19
4% ME&A 4% 12% South and Central Asia 26%
FY14 48 KT 508 KT
FY19 16 KT 79 KT
9% South America 4%
35 KT 75 KT • Exports to countries solely dependent on
exports.
• Faces stiff competition from players • Demand continues to grow on a fast
• Regional deficit of over 1 MT in Middle east. pace.
• Largely catered to by Russia and • However market is mostly catered • Faces competition from Chinese exports
Middle east. to by Chinese players – supplying of inferior quality.
• Indian exports driven by Hindalco which to projects run by Chinese MNCs /
supplies to its subsidiaries – Novelis funded by Chinese Banks.
and Aleris.
• Unlikely to be impacted.
Total Aluminium exports
FY14 FY19

681 KT 1935 KT
Threat to Indian exports
High Medium Low
Share of exports to remain high due to surplus capacity in domestic market
and high share of secondary Aluminium
Exports to moderate in the long term Imports to grow on the back of capacity additions in middle east

(mn tonnes) (%)

1.2 Chart Title 36%
(mn tonnes) (%)
2.5 Chart Title 60% 33% 34% 33%
52% 53% 51% 52% 34%
49% 1.0 32% 32% 32%
32%
42% 50% 31% 31% 32%
2.0
0.8
33% 34% 40% 30%
1.5 0.8
0.6 0.3 0.4 0.6 28%
23% 30% 0.4 0.6 0.6
2.2 0.3
1.0 0.2 26%
1.9 1.9 1.9 0.4
1.7 20%
1.2 24%
0.5 0.2 0.4 0.4
0.8 10% 0.3 0.3 0.3 0.3 22%
0.7 0.2 0.2 0.2
0.4
- 0% 0.0 20%
FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20F FY 21F FY 24 F FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20F FY 21F FY 24 F
Exports Exports as % of Production Ingot imports Product imports Imports as % of demand

Source: DGFT, CRISIL Research Source: DGFT, CRISIL Research

 Exports increased in 2018-19 led by rise in domestic production amid global
deficit of 1-1.5 million tonnes.
 Exports to witness a marginal fall in fiscal20 due to fall in production led by
supply disruptions caused by cyclone faani and poor coal supply by CIL. To
increase in long run led by ramp up in production post commissioning of new
lines of Vedanta and Nalco.
 Countries like Korea, Japan and Turkey will remain favourable
geographies for exports given higher product quality and lower cost vis-à-
vis Chinese manufacturers.
 Presence of downstream facilities in Europe and North America will also
lead to continued exports to these regions.
 Despite domestic surplus India imports around 34-36% of its requirements.
 While imports of ingots have been limited over the years, Aluminium
alloys (>90% AL content) imports have surged over the last few years
especially from Japan and Korea to cater to the domestic auto industry.
 Also, manufacturers in middle east continue to export surplus production
in domestic market. However, it is on a declining trend as exports from
middle east to Europe in on the rise due to increasing deficit in that region
 Thus, in the long term we expect imports to continue into domestic market
primarily on the back of rising production in middle east. However, addition of
downstream capacities is expected to limit product imports in the long run.
Healthy export volumes and modest domestic demand growth amidst
muted capacity additions to push utilization upwards
Domestic Aluminium Capacity, Production, and Utilization
('000 tonnes) (%)
5.0 Indian utilisation rate 94%
93%
92-94%
4.5
91% 90-92% 92%
4.0 90%
3.5 89% 90%
87-88%
3.0 88%
2.5 86%
2.0 84% 86%

1.5 84%
1.0
82%
0.5
1.9 1.7 2.4 2.0 2.7 2.4 3.3 2.9 3.7 3.4 4.1 3.7 4.1 3.6 4.1 3.7 4.7 4.3
0.0 80%

FY 20 f

FY 21 f

FY 24 f
FY 19
FY 14

FY 15

FY 16

FY 17

FY 18
Capcity Production Utilisation rates
Source: Industry, Company reports, CRISIL Research

 The industry’s utilisation level decreased to 90% levels in 2018-19, from 91% levels in 2017-18 led by capacity expansion at Jharsuguda (smelter II) by Vedanta.

 However, it remained lower than 95% levels achieved in 2012-13 due to to the addition of sizeable capacities by Hindalco & Vedanta (incl. Balco)

 While Hindalco and Nalco operated at a healthy 100% and 96% respectively, Vedanta could manage only 85% as it ramped up production gradually.

 However, capacity utilisation is expected to witness only a decline in fiscal 20 due to disruptions on the back of

 Fall in coal supply by MCL led to shutdown of potlines by Nalco in Q3FY20

 Cyclone Fanni also impacted production in the first quarter

 In the long run, capacity utilisation is expected to inch up to 92-94% in 2023-24 with only ~0.6 million tonne expected to be commissioned over this period by Nalco
Aluminium- Domestic Profitability

16
Rising power and fuel costs leads to margin contraction in fiscal19
EBIT margins of domestic manufacturers (inclusive of Alumina business) Key cost components for the domestic industry ( Aluminium business only)

(per cent) Chart Title

18.0%
16.0%
Other Costs,
14.0%
20%
12.0%
10.0% Alumina, 37%
8.0% 16% Staff, 5%
15%
6.0% 12% 12% 11%
9.9% 9.2% 10.2%
4.0% 8%
6% 6%
2.0% 4%
2.8% 3% 1%
0.0% Power, 38%
-1%
-2.0%
2015-16 2016-17 2017-18 2018-19
Industry Hindalco Vedanta Nalco
* Nalco changed segmental reporting standards in Q2FY20; Hindalco changed segmental reporting standards in Q1FY20 hence profitability is being considered for entire business- Aluminium & Alumina

 Despite being completely integrated Nalco continues to trail Hindalco in terms of profitability
 Nalco procures its complete bauxite requirement from captive mines while Hindalco purchases ~25 per cent from market at higher price
 However, Hindalco enjoys lower employee cost and lower cost of caustic soda which it procures from group company Grasim industries
 Moreover, Hindalco benefits from higher efficiency of its new smelters which consumers 10 per cent less power
 Better operating efficiency along with higher realisations due to higher share of value added products leads to higher profitability for Hindalco
 Vedanta continues to trail the leaders due to lack of upstream integration and higher dependence on export market
 Continued dependence on imported bauxite and alumina continues to hurt Vedanta; imported bauxite is 2.5-3 times costlier than captive bauxite
 A larger proportion of its sales (over 60 per cent) are in exports market which fetches lower realisations thus hurting profitability
 However, larger scale of operations leads to lower other costs
Captive supply of bauxite and coal leads to lower raw material costs for
Nalco and Hindalco
(million tonne) 3.1:1 2:1
Aluminium
Bauxite Alumina
Production
41% 38%
1.8 1.5
Vedanta*

1.96
0.9 20%
2.4
62%
1.7 39%

50-55%
6.6 74%
Hindalco

100%
2.9 1.29

2.3 0.3
26%
Nalco

100% 100%
7.41 2.15 0.44

Captive/ Linkage 1.27

Merchant - Domestic
Imports
Profitability to witnesses a steep fall led by falling realisations and
rising power costs
EBIT margins of domestic manufacturers (inclusive of Alumina business) Cost break-up of domestic manufacturers ( aluminium business only-F19)
(per cent)
12.0% Series1 100% 1% Chart Title
10.2% 6% 8%
9.9% 90% 16%
7%
10.0% 9.2% 18%
80% 6%
2% 20%
70% 15%
8.0%
6.5-7.5%
60% 4% 14%
33%
6.0% 50%
3.5-4% 40% 32%
4.0% 32%
2.8% 30%
20% 39%
2.0%
10% 26%
19%
0.0% 0%
2015-16 2016-17 2017-18 2018-19 2019-20F 2020-21F Vedanta Hindalco Nalco
Alumina Power Staff expenses Selling & others Depreciation EBIT
Source: Company reports, CRISIL Research Source: Company reports, CRISIL Research
 Margins to witness sharp contraction in 2019-20 margins led by fall in realisations amid surging power costs
 Steep fall in line with domestic prices- led by fall in global prices as well as weak demand due to surge in scrap imports to lead to fall in realisations; Also fall in
Alumina prices will drive margins lower for Nalco which sells over 60% of its alumina externally.
 Poor supply by Mahanadi Coalfields has forced players to shut down plants / purchase grid power / use imported coal leading to surge in power costs
 However, ramp up in production of Lanjigarh refinery post debottlenecking as well as rise in share of domestic bauxite with increase in supply by OMDC along with
easing Alumina cost is expected to lead to limit margin
 Further, rise in one time expenses due to repair and maintenance work due to damages caused by cyclone in Odisha will also impact margins. In fact margins
contracted by ~1070 bps in the first half of the year to 0.6%.
 Margins are expected to rebound in the next fiscal led by fall in power and fuel costs and low base of current year (high one time expenses).
 In fiscal 19 margins witnessed a 100bps expansion led by surge in Nalco’s profitability on the back of higher Alumina prices. On the other hand Vedanta witnessed
marginal contraction led by higher raw material prices.
 While Aluminium business witness a marginal contraction of ~10 bps, surge in profitability of alumina business led to overall margin improvement of ~100 bps
Favourable government policies continues to aid domestic manufacturers

Bauxite Other raw Share of

sourcing Power cost materials exports

Impact High High Medium Medium

Nalco operates Power cost ~35 of Caustic soda and Exports fetches
captive mines, costs. Share of carbon products lower realisations
Hindalco has 75% captive coal are the key other to the tune of 5-10
bauxite linkage determines raw materials. per cent (FY19)
profitability
% of total
30-35 30-35 25-30 Tie-ups leads to Vedanta exports
costs Vedanta
Vedanta gets coal for lower cost for 60% of its
purchases 60%
its power business. Hindalco. Nalco & produce. Hindalco
from external
Nalco and Hindalco Vedanta and Nalco’s
(imported /
has 70-80% captive purchases from exports limited at
Rationale merchant)
coa/ linkage coal. open market ~20% (FY19)
Vedanta and
Start of Dumri mine Nalco is investing
Hindalco signed Thus, Vedanta,
to increase captive in upstream
deals with OMC leading Al
/linkage share to integration.
for bauxite supply exporter, has
90% for Hindalco. Setting up CD and
which will reduce lowest realisations
Nalco to start mining CTP units.
raw material costs
at Utkal D.
Deal with
Increasing share of All players setting
Emirates Global Any price
captive coal to limit up downstream
to procure bauxite movement
imports leading to VAP to reduce
from Guinea will impacts all
lower power and fuel exports & improve
also reduce costs players equally.
costs realisations
for Vedanta
Key positives and risks governing Aluminium sector
Demand-supply equilibrium to improve
(Demand moderation: Slow ramp up of new capacities
and continued capacity cuts to lead to deficit in 2020 )
Capacity utilisation continues to improve
(Demand to outpace supply aided by slow pace of
new additions and decommissioning of inefficient
capacities)
Prices to moderate
(Lower production cuts in China and
easing cost pressure to lead to lower
prices)
Profitability to improve in the long term
(Domestic realisation to fall in 2019-20 led by fall in
global prices)
(Industry profitability (EBIT) to fall in 2019-20 to
3.5-4 per cent)
(Profitability to improve in 2020-21 with easing cost
pressures, rise in share of value added products
and rise in captive alumina production)
Domestic demand to slow down
( (6)-(8)% in FY20; 4-6% in FY21)
Ongoing trade wars remains a key concern
( Exports to US and EU to be hit)
( Imports of scrap and secondary aluminium to limit
growth in domestic primary sector)
Supply glut to continue
(No new capacity additions expected till FY23, still
demand-supply gap to remain; players to continue
operating at high utilisation levels, surplus
production to be exported )
Alumina prices to come down
(Falling caustic prices amidst higher alumina
availability to lead to lower prices, increase in
domestic bauxite consumption to lower costs as
well for Vedanta)
Power cost to surge in FY20; moderate in near team
(Power costs to surge in current fiscal led by poor supply
of coal by Coal India leading to use of expensive
imported coal; moderate in near term led by rise in share
of captive coal; higher supply of linkage coal)
Thank you