aluminium value chain
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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)
Quantity (in tonnes)
Value (Rs. In crore)
Quantity (in tonnes)
Value (Rs. In crore)
Quantity (in tonnes)
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
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
• 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
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
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
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
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
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
Share in value in world's exports, % in 2009
Share in value in world's exports, % in 2010
Share in value in world's exports, % in 2011
Share in value in world's exports, % in 2012
Share in value in world's exports, % in 2013
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
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