India emerging from degrowth phase

India is an island of calm in a choppy world as can be seen from the buoyancy in its economic activity – the June core sector recovers from 5-mth low, up 5.2%; Factory growth is at 4-month high of 51.8 in July; Services sector output rose to 51.9 in the same month and lastly, the exports have started picking up in recent months. In fact, the country is firing on all cylinders  and its pace of growth has become the envy of many aspiring countries around the world.

To sustain the renewed growth phase, the government has drawn aggressive  infrastructure  upgradation plans and increase industrial production , where aluminium, among other metals will receive a tremendous boost due to its properties of high strength, durability and corrosion resistance. 

The long-term consumption trends are quite positive, reflecting rising per capita consumption in emerging economies. The domestic demand growth is set to moderately improve in the near term as the key sectors driving aluminium growth such as lightweight automobiles, buildings, infrastructure, power sector, aerospace and packaging etc are witnessing vigorous growth.  The longer-term price evolution for aluminium will largely be determined by supply-side considerations such as the availability of key raw material inputs such as bauxite and access to low-cost energy. 

Meanwhile, the aluminium industry has undergone a sea change during the last few decades. As the metal started replacing other metals and its applications continue to expand laterally across sectors, the need for newer technologies and innovation could not have been more pronounced. The need for innovation was further emphasised by the falling prices of this industrial metal. Aluminium production, especially primary aluminium, is essentially an energy-intensive process. Minimising cost through reduction in energy consumption facilitated by technological advancements in various areas of manufacturing, therefore, has to be a priority, as has been the focus on reducing emissions and minimising the impact on environment. India has remained significantly aligned with these global trends.

However, the substantial inventory and new capacities in China, India and Middle East will continue to prevent increase in prices.  Rising imports from China and the Middle East are a major concern for the industry. Moreover, slowdown in China has resulted in dumping  of surplus production from that country in India and international markets triggering a steep fall in prices and distorting the market equation.  Another bane of the industry is that of low capacity utilization  as the industry has invested huge sum to ramp up capacity in anticipation of demand.

Judicious steps should be taken to promote the industry and help it to overcome the above challenges. It is time to realize that value addition to resources within the country is the best solution – both for the industry and for the communities surrounding the resource-rich areas. The coal sector reforms, MMDR Act are good steps in this direction and bring certainty on some of the policy aspects.

With the robust economic growth seen in the country and changing life styles, the consumption of this fascinating and flexible metal is set for a roller coaster ride as we continue to find new applications for aluminium adding vigour and excellence to all sectors as India emerges strongly from the shadow of degrowth of the last couple of years.