Not all sheen is robbed

off: Aluminium demand

fundamentals stay

strong!

Global aluminium industry is visibly distressed. Aluminium prices on

London Metal Exchange are yet to find a solid support – the fluctuating

downward dip still continues; premiums have collapsed; supply is still in

excess of the demand, and to the utter dismay of the biggest aluminium

producers of the world, China is still not slowing down on its primary

metal production- at least not to the extent it should at the moment! In a

nutshell, the market is in a bad shape and aluminium seems to be having

little to give back to its investors.

Though this kind of volatility is not unexpected, given the nature of the

commodity’s fundamentals, the changing international trade dynamics

leading to worsening of the scenario, is what bothering the producers the

most. Major markets across the world including that in the United States

are flooded with Chinese semi-fabricated aluminium products such as

aluminium extrusions, profiles and aluminium sheet, which are being

shipped at subsidized rates, and these are severely affecting domestic

markets.

Heidi Brock, President & CEO, The Aluminum Association, USA, recently

said in an interview with AlCircle, “this is not simply free trade at work. In

addition to the non-market incentives from the Chinese government,

there is also mounting evidence that certain producers in China are

unlawfully using the system to further distort the market.”

In India too, the situation is quite alarming. Increase of cheap aluminium

imports is posing a major threat to the domestic industry, and Indian

Government despite its “Make in India” programme in place is doing

little to resolve the issue by imposing proper safeguard duty on the

imports.

Prof. K.S.S. Murthy, General Secretary, Aluminium Association of India said

in this regard, “It is also required to keep a close watch on cheap imports

from China and other countries in order to ensure healthy growth in

Indian aluminium industry, both primary and downstream.”

However, amid all these challenges there is this one factor that is keeping

the entire industry’s hope afloat- aluminium demand is growing (although

at a relatively slower rate than the supply growth), and the end use

applications of the metal are burgeoning.

No wonder, aluminium makers are focussing more on their downstream

verticals as they feel that is what is going to get the cash flowing for them

at the end of the day.

Downstream aluminium is heating up

Alcoa, the lightweight metal major, reacting to the hour’s need, has recently

announced their decision to split into two independent entities- the

Upstream Company and the innovation and technology driven Value-Add

Company. The latter, likely to include global rolled products, engineered

products and solutions, and transportation and construction solutions, will be

positioned as a differentiated supplier to the high-growth aerospace

industry.

The company is also intended to be at the forefront of capturing demand

for aluminium intensive vehicles through Alcoa’s recent commercialization of

breakthrough technologies such as the Micromill. Additionally, the Value-

Add Company will also be directed to meet the demand of aluminium

commercial truck wheels and architectural systems markets in North

America.

Following Alcoa’s suit is Norsk Hydro, Europe’s third largest aluminium

producer, who is already considering a similar split into upstream and

downstream divisions to better cope with the global aluminium price slump.

Analysts say it (the proposed split) is “just a matter of time!”

Nevertheless, once well-known primary aluminium makers, whether as a

separate SBU down the line or as an integrated business entity, are now

strengthening their downstream product line-ups and entering into

technology tie-ups with big brands in various end user sectors to do justice

to the already piled up aluminium in stocks.

Now, the question is: is there adequate “pull” to take the consumption of

downstream aluminium or other aluminium products (e.g. aluminium alloys

and aluminium extrusions) from the present low to the next higher level?

How strong is the aluminium demand?

Aluminium demand: sector-wise market overview

From figure1, it is clear that the transportation sector followed by the

construction, electrical engineering, and then packaging are increasingly

creating opportunities for enhanced aluminium consumption.

Transportation:

Aluminium demand in the transportation sector is clearly on the rise. The

white metal is largely replacing comparatively heavy-weight steel for

building cars and trucks. And why only automobiles, the once indispensable

metal for the aerospace industry, aluminium, for being lightweight, is now

being used in large scale in bicycles, buses, trains, ships and even

spacecraft!

The big task ahead for the auto industry is to reduce GHG emission by way of

making vehicles less oil hungry, which in turn can be achieved by making

them light-weight. This is becoming mandatory across economies as they are

embracing stricter CAFÉ (Corporate Average Fuel Economy) regulations in a

bid to make their industries more environmentally sustainable. This race

amongst car makers to reach the desired light-weighting targets by way of

innovation will boost the use of aluminium sheet and aluminium alloy

products in a large way.

Construction:

In construction, the appetite for aluminium is seen increasing mainly in the

non-residential construction sector. This comes in the wake of developing

countries announcing their plans to overhaul their infrastructure. This is

fuelling overall aluminium demand, especially the growth of consumption

of aluminium extrusions and aluminium alloy products which offer the same

level of strength and durability as that of steel, yet better suited for complex

designing and fabrication.

In residential sector too, iron window grills and beams are a thing of past

now. Aluminium panels have long replaced them. Aluminium products like

curtain walling and structural glazing systems, aluminium roofing and

cladding are also becoming commonplace these days.

Electricals:

The monopoly of copper in the electrical sector has practically come to an

end, thanks to the increased use of aluminium in a large number of

applications. The white metal is used extensively in high-voltage transmission

lines, substation busbars, television antennae, and satellite dishes. Exploration

of further use of aluminium in electricals will boost aluminium demand for

semis, especially aluminium wire rods and aluminium extrusions, which have

been fluctuating until now due to absence of adequate takers.

Packaging:

Aluminium packaging is evolving really fast. By virtue of its chemical inertness,

infinite recyclability, light-weight, formability, and printability, aluminium is

becoming the packaging material of choice for leading FMCG companies

who are always looking for out-of-the-box ideas to brand their products

differently and stand out in the competition. This increased rate of adoption

of aluminium as a solution for green packaging is boosting the consumption

of aluminium extrusion products.

Packaging also makes use of a large volume recycled aluminium recovered

from aluminium scrap. Aluminium beverage cans and aerosol cans, for

example, are recycled extensively with minimal loss of energy. Packaging

waste recovery data for the third quarter of 2015 shows that aluminium

packaging recycling has recorded its highest ever quarterly performance at

23,330 tonnes.

Aluminium demand and its use in other sectors too is increasing. Mobile

handset industry is consuming a lot of aluminium. Right from Samsung, Sony,

Lenovo, and HTC to iPhone and Xiaome, every leading brand, nowadays, is

bringing out their own exclusive aluminium versions of handset.

All these end-use applications and much more will spruce up aluminium

demand for downstream products, providing traction to the entire aluminium

industry value chain.

Thank You