aluminium 200503

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IndustryCom

ment

ICRASectorAnalysis

ICRA

Non- Ferrous Metal

The Indian Aluminium Industry

March 2005

www.icraindia.com

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Industry Comment The Indian Aluminium Industry

Page 2

Contacts:Rajeev Thakur Research HeadAmul Gogna Executive Director

Date March 2005

Copyright, ICRA Limited, 26 Kasturba Gandhi Marg, New Delhi 110 001

None of the information contained in this publication may be copied, otherwise reproduced, repackaged,further transmitted, disseminated, redistributed, or resold, or stored for subsequent use for any such purpose,in whole or in part, in any form or manner or by means whatsoever, by any person without ICRAs prior

written permission.

All information contained herein has been obtained by ICRA from sources believed by it to be accurate andreasonable. Although reasonable care has been taken to ensure that the information herein is true, suchinformation is provided as is without any warranty of any kind, and ICRA in particular, makes norepresentation or warranty, express or implied, as to the accuracy, timeliness or completeness of any suchinformation. All information contained herein must be construed solely as statements of opinion and ICRA

shall not be liable for any losses incurred by users from any use of this publication or its contents.

In the course of work, ICRA may have received information from companies being rated or graded. However,this publication does not contain any confidential information obtained by ICRA in the process of rating orgrading. This publication contains data/information available only in the public domain or available throughsecondary sources.

Opinions expressed in this publication are not an indication of the prospective rating/grading for anyinstruments to be issued by any of the companies concerned.

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CONTENTS

INTR ODUCTION ...........................................................................................................4DOME ST IC DE MAN D F OR ALU MI NIU M ...........................................................5

EN D-USER SEGMENTS ......................................................................................................5GROWTH POTENTIAL .......................................................................................................7THREAT OF SUBSTITUTES ...............................................................................................8DEMAND TRENDS AND PROSPECTS IN INDIA ................................................................8

DOM E ST IC SU P P LY OF ALUM INIUM ............................................................. 10INDUSTRY STRUCTURE ..................................................................................................10DOWNWARD INTEGRATION ...........................................................................................11PRIMARY METAL PRODUCERS ......................................................................................11SECONDARY METAL PRODUCERS .................................................................................12ALUMINIUM RECYCLING ...............................................................................................13DOMESTIC P RODUCTION OF ALUMINIUM ....................................................................13ALUMINA SUPPLY...........................................................................................................14BAUXITE M INING ...........................................................................................................15

CO ST OF P R OD UC IN G AL UMI N IUM ............................................................... 17RAW MATERIALS ............................................................................................................17POWER .............................................................................................................................18OTHER CONSUMABLES ..................................................................................................20

P RO F ITABIL ITY OF DO MES TIC ALU MINI UM P RO DUCE RS .............. 21TR E NDS IN AL UMI NIUM P R ICE S ..................................................................... 23

INTERNATIONAL ALUMINIUM T RENDS ........................................................................23DUTY STRUCTURE ..........................................................................................................24DOMESTIC P RICING OF ALUMINIUM ............................................................................25

IMP OR T AND EXP OR T MAR KE TS .................................................................... 27IMPORT MARKETS ...........................................................................................................27EXPORT MARKETS ..........................................................................................................27

OUTLOOK...................................................................................................................... 28AN NE XUR E S ................................................................................................................ 29

ANNEXURE 1 ...................................................................................................................29

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INT R ODUC T I ON

Over the past few decades, aluminium, with its diverse applications, has

established itself as a wonder metal. It is light, ductile, a good conductor of

hea t an d electricity, non-ma gnetic, non -toxic an d decora tive. Being ma lleable,it can be alloyed with other m etals. The meta l has th e poten tial to substitu te

other conventionally used materials like steel in many applications.

Worldwide, aluminium is used in various sectors, prominent among which are

transportation, packaging, building/construction, electricity and consumerdurables. Primary aluminium is processed further into bars, rods, billets,

plates, sheets, foils, etc. which are used in a variety of products such as air

conditioners, refrigerators, aircraft (structures and engines), automotives

(body parts and engines), bridges, food containers, drink cans, cooking and

packaging foils, window an d door fra mes for buildings a nd electr ic cables.

Over the last two decades, the global production pattern for aluminium hasundergone extensive regional changes. Although the US is still the largest

primar y producer of aluminium, China is cat ching up fast . Both the count ries

recorded almost equivalent production in 2003. Most of the recent growth in

th e aluminium indust ry ha s emerged from th e developing coun tr ies.

India is an important player in the aluminium sector, especially because of its

abundant bauxite reserves (primary raw material in the production ofaluminium), which make the country one of the lowest cost producers of the

metal in the world. India entered the global aluminium industry in 1943

following the establishment of Indian Aluminium Company Limited (Indal).

However, it was only in 1987, with the incorporation of National AluminiumCompa ny Limited (Nalco), tha t In dia becam e a n et export er of alum inium.

At present, the Indian aluminium industry consists of primary integrated

producers (who procure and process bauxite into aluminium) and secondary

fabrication units (who convert aluminium ingots into rolled/extruded

products). The industry is dominated by three major producers: Aditya BirlaGroup (which controls Hindalco Industries Limited and Indal), Sterlite Group

(which controls Bharat Aluminium Company Limited (Balco), and Madras

Alumin ium Compa ny Limited (Malco)) an d Na lco a pu blic sector en ter prise.

These three together account for the majority share of the total domestic

aluminium production.

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D OMESTIC D E MAND F OR AL UMI NI UM

END -USER SEGMENTS

The main end-users of aluminium are the automobile, electrical, packaging,

consumer durables and construction sectors. The main applications of the

meta l in t hese sectors are pr esented in Table 1.

Table 1

Main Appl ica t ions of Alum iniu m

Sector Appl ica t ions

Automotives Pa nelling, floorin g, windows

Electrical Condu ctors, extr us ions , foil wra ps for cablesPa ckaging Can s, cont ain ers , collapsible tu bes, an d foils & closures

for food, tobacco and pharmaceutical products

Consumer Durables White goods, fan s, coolers

Construction Roofing, window frames an d building ha rdwa reCompiled by INGRES

The usage pattern for aluminium in the sectors mentioned is different in India

as compared with the rest of the world. The distribution of aluminium demandin India an d tha t in t he rest of th e world are compar ed in Exhibit 1 .

Exhibi t 1

E n d-Use Pa t t e r n fo r A lum in ium

Compiled byINGRES

While globally, the automotive and construction sectors are the major end-

users of aluminium, in India, the bulk of the demand is accounted for by the

electrical sector, followed by automotives. The anomaly can be attributed

largely to the Government regulations that were in force till as late as 1991.

According to the Aluminium Control Order, 1970, 50% of the total aluminiummetal output had to be of electrical grade. As a result, there were severeshortages of commercial grade aluminium even as demand for electrical grade

aluminium grew at a sluggish pace.

However, with t he r escinding of cont rols in 1991 an d th e subsequen t growth of

the automotive and construction sectors during the 1990s, the share ofdemand from the electrical sector declined gradually. The sector-wise

aluminium consum ption t rends in India are pr esented in Table 2 below.

World

Automotives29%

Others

18%

Machinery

8%

Electricals

9%

Packaging

18%

Building

18%

End Use Pattern - India

Autos

18%

Building

13% Machinery

6%

Electricals

31%

Packaging

11%

Others

21%

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Table 2

Sector -wise Consu mp t ion of Alumin iu m in In d ia (%age of to t a l )

Se ct or s 1970-71 1980-81 1991-92 1995-96 1999-00 2003-04

Electrical 48 52 37 34 35 31

Automotives 8 11 21 22 21 18

Machinery 6 6 6 8 6 6Pa ckaging 8 6 8 11 10 11

Building 2 6 7 8 10 13

Ot her s 28 19 21 17 18 21

Total 100 100 100 100 100 100Compiled byINGRES

Electrica l S ector

As discussed, the electrical sector has traditionally accounted for bulk of the

demand for aluminium in India, owing primarily to the Aluminium Control

Order that was in place till 1991. Around 80% of the aluminium demand

emanating from the power sector is accounted for by bare conductors used for

the transmission and distribution of electricity. Since 1984-85, there has been

growing use of aluminium alloy conductors, which have better structural andthermal properties, and can be made to different strength/conductivity

requirem ents for t ra nsm ission a t different volt ages, th us leading to lower

losses.

Aluminium is also used in insulated and underground cables laid in large

populated urban areas and in reserved forests (to avoid deforestation). In

addition, the metal finds application in electrical devices such as transformers

and other coil windings, which use paper insulated or enamelled aluminium

wires and str ipes.

Automotive Sector

Globally, aluminium is increasingly being used in the automotive sector

because of its high strength-to-weight ratio, which leads to better fuel

efficiency. Traditionally, aluminium has been used for panels, flooring andwindows by automotive manufacturers across the globe, but now, it is being

used t o make a ut omotive chassis an d engine. The extensive use of alum inium

can result in a weight reduction of up to 300 kg for a medium-sized vehicle

(1,400 kg). Besides, in addition to having light weight, aluminium space

fra mes ha ve shown better cra sh r esistan ce tha n conventional steels.

On an average, world-wide, around 150 kg of aluminium is used in the

manufacture of one car. The corresponding figure for India is only 40 kg at

present; it is however likely to go up in line with the global trend. Also, whilethe use of aluminium in rail wagons in India is almost negligible at present,

there is a possibility that aluminium would be used in significant quantities in

th e man ufactu re of ra il wagons a nd coaches in fut ur e.

Bu i ld in g /Co n s t ru c t io n

Aluminium is being used in the building/construction industry because of itsproperties like corrosion resistance, malleability, ductility and strength. The

metal finds extensive use in corrugated sheets (for roofing), butt hinges,

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latches, tower bolts, handles, etc. The high strength to weight ratio of the

metal enables use of aluminium alloy frames in the construction of high-rise

structures. Besides, aluminium is also being used increasingly in the

construction of permanent bridges (so far, it was used for making collapsiblebridges, used mainly by the army). Aluminium bridges are of advantage

because of their lower maintenance requirements. Moreover, because of the

higher strength -to-weight r at io of the m etal, th e dimensions of the st ructur alscan be reduced.

P a c k a g i n g

In t he pa ckaging sector, alum inium is used in foils, can s, collapsible tu bes an d

bottle caps. Hence, globally, the growth of the packaging industry hinges on

growth in sectors like foods, beverages, a nd medicines.

While the world over, aluminium beverage cans (ABC) account for a

substantial part of the total aluminium consumption, in India, ABC is only a

recent phenomenon. However, carbonated drinks are now increasingly being

packed in ABC in India. Within the packaging industry in India, the foils sub-

segment is expected t o grow fast er t ha n t he r est because of its wide use in foodpackaging. The total demand for foils in India is currently at around 50,000-

55,000 tonnes a year. As public awareness of the advantages of foil use

increases, the demand for aluminium from the packaging sector is also

expected t o increas e.

C on s u m e r D u r a b l es

Aluminium , being a th erma l condu ctor, light an d corr osion resista nt , is used

in variety of consumer durable items like air conditioners, water coolers,

refrigerators, utensils and pressure cookers. As in the case of automotives, the

global consumer durables sector is also witnessing a trend towards weight

reduction, which points to good prospects for aluminium off-take by thissector.

GROWTH P O TEN TIA L

The per capita consumption of aluminium in India is currently at 0.6 kg a

year, which compares poorly with the figures for most developing countries

(refer Table 3), including Bra zil, which is at a similar sta ge of development as

India. The current low consumption of aluminium in the country, besides the

fact that India has the fifth largest bauxite reserves in the world, points tolar ge growth poten tia l for t he sector.

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The domestic demand for aluminium has increased at a compounded annual

growth rate (CAGR) of 6% during FY2000-FY2004. While the growth in

demand on year-on-year (y-o-y) basis was low during FY2001 and FY2002, it

picked up after FY2003. Rising Gross Domestic Product (GDP) growth rate,and increase in the range of aluminium products have been the main drivers

of this growth in dema nd for a luminium in th e coun tr y.

The domestic consumption of aluminium is expected to grow in the annual

ra nge of 6-8% on t he st ren gth of th e encour aging outlook for t he following end -

user segment s:

Elec t r i ca l s ec to r : The power industry is currently characterised by

shortages. Further, the demand for power is expected to continue to

increase over the medium to long term, thus necessitating significantincreases in capacities. The restructuring of the State Electricity Boards

and the implement at ion of the E lectr icity Act, 2003 would a lso open u p

new opportunities in the areas on power generation, transmission and

supply. The forecast requirement of 100,000 MW of additional generation

capa cities in th e 10th Plan period is likely to tra nslat e into new investmentin power generat ion and distribution.

Automot ives : Easy availability of low cost finance with longer tenures,

price cuts on the strength of reduction in peak rates of customs duty and

improved rural demand owing to recovery in agriculture sector areexpected t o cont inue dr iving growth in t he a ut omotive sector.

Cons t ruc t ion : Housing demand is expected to remain robust because of

enabling factors such as tax relief against interest cost on housing finance,

competitive interest rates and availability of housing finance for duration

as long as 30 years. Further drivers of construction sector growth in Indiawould be th e u pcoming h ighway projects.

C o n s u m e r D u r a b l e s: The medium- to long-term prospects for the Indian

consumer durable industry appear positive, given the combination ofincreasing disposable incomes and the trend of reducing prices (owing, in

particular, to a decline in duties and taxes). Further, the availability of

consumer financing schemes from banks and other financial intermediaries

ha s ma de the a cquisition of dura bles more convenient, and t his ha s been a

ma jor dema nd driver.

P a c k a g i n g : The demand for packaging is expected to increase, given thehealthy growth likely in the pharmaceutical sector. Further, with the

coun tr ys GDP expected t o report a hea lthy growth in t he imm ediate t o

medium term, the consumer spending on foods and beverages is likely to

increase, with th e resu ltan t positive implicat ions for th e packaging sector.

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D OMESTIC SU P P L Y O F AL UMI NI UM

INDUSTRY S TR U C TU R E

The domestic aluminium industry can be divided into two broad categories:

1. Pr ima ry meta l produ cers: Those processing bau xite int o alum inium ingots ,

billets or properzi rods.

2. Secondary fabrication units: Those processing aluminium into rolledproducts, foils, sheets or extr usions.

Exhibit 3 presents th e structure of the Indian a lumi nium indust ry. For details

on t he Man ufactu ring P rocess referAnnexure 1 .

E x h i b i t 3: S t r u c t u r e o f I n d i a n Al u m i n i u m I n d u s t r y

Compiled by INGRES

Given that production of aluminium (the metal) is a more capital-intensive

activity than fabrication, there are just five large ingot producers in India, asagainst several small downstream manufacturers. Despite being secondary

products, rolled products are largely manufactured in the primary sector on

accoun t of the h igh capita l cost s involved in set tin g up cold /hot rolling m ills.

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DOWNWARD INTEGRATION

Since primary players produce aluminium at much lower costs vis--vis the

landed cost of imported aluminium that is used by most secondary players, the

margins of primary producers increase if they undertake secondary processing

themselves. The primar y industry has thu s sta rted integrating downwards.

P RIMARY METAL P R O D U C ER S

The primary aluminium industry in India is concentrated in three business

groups i.e., the Aditya Birla Group, Sterlite Industries and Public Sector

Undertakings (refer Exhibit 4). The five primary metal producers in the

domest ic alum inium indust ry are:

1. Na tional Alum inium Compa ny Limited (Na lco)

2. Hin dalco Indu st ries Limited (Hin dalco)

3. India n Alum inium Compa ny Limited (Inda l)

4. Bha ra t Alum inium Compa ny Limited (Balco)

5. Madr as Alum inium Compa ny Limited (Malco)

E x h i b it 4 : S t r u c t u r e o f P r i m a r y Al u m i n i u m I n d u s t r y o f In d i a

H i g h D e g r e e o f C o n c e n t r a t i o n

The domestic aluminium industry is characterised by a high degree ofconcent ra tion becaus e of th e following rea sons:

High capital costs because of large plant sizes (150-200,000 tonnes per

annum smelters) and high capital intensity (Rs. 100,000/tonne of

aluminium capacity as compared with Rs. 30,000/tonne of integrated steel

ma king capacity, and Rs. 4,000/tonn e of cement )

Restr icted a ccess t o techn ology; tie -ups ha ve to be entered in to with globaltechn ology su ppliers.

Entry into the aluminium industry restricted by licensing controls till

1989.

Exhibi t 5

Exhibit 5 presents the percentage

shares of domestic producers in

the total annual production of

aluminium during FY2004.

Hindalco accounts for the highest

sh a re, followed closely by N alco.

S ource: Min istry of Mines, Governm ent of India

Primary Aluminium Industry

Aditya Birla Group Public Sector Undertakings Sterlite Industries

Hindalco Indal Nalco Balco Malco

Share in Total Domestic Primary

Aluminium Production (FY 2004)

Hindalco

39%

Indal

8%

Balco

12%

Malco

4%

Nalco

37%

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The other t hr ee players cum ulat ively ha ve a sha re of ar oun d 25% of th e tota l

domest ic production of aluminium . As In dal is a lso held su bsta nt ially by th e

Aditya Birla Gr oup a long with Hin dalco, almost h alf of th e domestic produce

of aluminium can be a tt ributed to th is group.

SECONDARY METAL P R O D U C ER S

The secondary rollers an d extruders in t he Indian alum inium indust ry eith er

purchase the primary metal (billets and blooms) from domestic producers or

import the same and process the metal at their own fabrication plants into

semi- or fully-fabricated products. Such secondary metal producers include

India Foils, Pennar Aluminium, and Century Extrusions, which together

cont rol over 70% of the m ar ket for extru sions an d foils.

The secondar y meta l (aluminium ) indust ry in In dia is chara cterised by: L ow e n t r y b a r r i e r s : The barriers are low because of low capital costs and

low dependen ce on t echn ology. The low entr y bar riers, in tu rn , imply keen

compet ition and low capacity ut ilisat ion. H i gh i n p u t c o st : Most of the domest ic production of prim ar y alum inium is

either captively consu m ed or export ed by the prim ar y producers. The

seconda ry players, t her efore, rely hea vily on im port ed alu minium , which is

expensive because of the high import duties. In fact, the high landed costs

of primary aluminium exert great pressure on the margins of secondary

producers (primary producers, on th e oth er ha nd, have star ted integra ting

downwards to take advantage of the low cost of aluminium that they

produce in h ouse).

The annual production capacities of some of the major domestic secondary

producers ar e presen ted in th e following ta ble.

Table 4: P r oduc t ion Cap ac i ty o f Second ar y Aluminium Pr oducer s in

Domest i c Mark e tP r od uce r Yea r Rod s E x t r u sion s R o lle d

P r o d u c t s

Foi l s Wheels

(000 tonn es) (000 tonn es) (000 tonn es) (000 tonn es) (000 Nos.)

H in da lco 2 00 3-0 4 40.00 13.70 80.00 5.00 3 00 .0 0

Na lco 20 03-04 100 .00 - - - -

Indal 2003-04 - 8.00 90.00 9.00 -

Balco 2003-04 55.75 8.00 43.60 0.60 -

Ma lco 2003-04 36.00 - 3.00 - -

Bh or u ka Alu m in iu m 2003-04 - 6.50 - - -Century Extrusions 2003-04 - 9.00 - - -

Ma h a vir Alu min iu m 2003-04 - 12.40 - - -

Orissa Extrusions 1999-00 - 7.20 - - -

Sangam Aluminium 2000-01 - 7.00 - - -

India Foils 2002-03 - - - 19.00 -

P G F oils 2003-04 - - - 5.00 -

P en nar Alu min iu m 2003-04 14.40 - 30.00 - -Com piled by IN GRES

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As the primary producers account for bulk of the products in domestic

seconda ry mar ket, this ma rket is domina ted by primary producers th emselves.

ALUMINIUM R ECYCLING

Anything made from aluminium can be recycled* to produce the metal again.

In r ecycling alumin ium t o produce seconda ry met al only 5% of the ener gy tha tis needed t o produce the prima ry m eta l is consu med; also, recycling genera tes

only 5% of the greenhouse gas emissions as in primary production. Thus,aluminium scrap or S e c o n d a r y A l u m i n i u m is an important source of

supply for alum inium alloys.Seconda ry a lumin ium is r ecovered from both new

an d old (purchased) scra p.

DOMESTIC P RODUCTION OF ALUMINIUM

Exhibi t 6

The domestic annual

production of aluminiumhas increased at a CAGR

of 8% during FY1999 FY2004, i.e., from 0.54

million tonnes to 0.82

million tonnes. The

production has risen

keeping pace withsurging demand and

increasin g pr ices (referCom piled by IN GRES

Exhibit 6). Consequently, there has been a sharp increase of 18.57% on y-o-y

basis i n pr oduction dur ing FY2004 as compa red with FY2003.

Table 5 A: Alumin ium Pr oduc t ion in Ind ia : Tren ds(in 000 tonn es)

Company Actua l P rodu c t ion

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

Hin da lco 239 251 253 263 266 323

Nalco 146 213 230 232 245 298

Indal 42 43 44 44 50 65

Balco 92 95 87 70 96 97

Malco 25 19 29 29 31 33

Tota l 545 621 643 639 688 816Compiled byINGRES

* Recycling Process: Scrap is collected and taken to recycling plant s. Th e com position and value of such

scrap is then estim ated. Followin g estimat ion, the scrap is passed through la rge magnets to rem ove any

ferrous metals. S ome furth er processing m ight be required to rem ove any other im purity. T he scrap

aluminium is then loaded into a furnace, which melts the aluminium completely. This molten metal is

then cast or processed, usin g the sam e techn iques as in prim ary processing.

Production - Primary Aluminum (Tonnes)

500,000

600,000

700,000

800,000

900,000

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04

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Table 5 B: Alum iniu m P rod u ct ion in Ind ia : Cap aci ty Ut i li sa t ion (in tonnes)

Capaci ty

(2003-04)

Capac i ty

Ut i l i sa t ion

(2003-04)

Company Location

Hinda lco Renukoot (Sonbhadra , Utt ar Pra desh) 345,000 94%Nalco Angul (Orissa ) 287,500 104%

Indal Alupu ra m (Kera la), Hira kun d (Orissa ) 110,000 63%

Balco Bidhan bag (West Bengal), Korba (Madhya

Pradesh)

100,000 97%

Malco Mettu r Dam (Salem, Tamil Nadu) 40,000 81%

Tota l 882,500 92%Compiled by INGRES

India s pr imar y alum inium production capa city a s at th e end of FY2004 stood

at around 0.9 million tonnes and the actual production at 0.8 million tonnes.

The industry is currently operating at 92% of its rated capacity. The increase

in both domestic and int ernat ional dema nd h as encoura ged producers t o raisetheir capacities. For details on the stated future expansion plans of domestic

producers of pri ma ry a luminium refer Table 6.

Table 6: P lann ed Inc r eases in P rodu c t ion Cap ac i ty fo r P r imar y Aluminium (in tonnes)

Company P l a n n e d

Addi t ional

Capac i ty

S t a t u s

Hindalco 15,000 Schedu led to be completed by 2006

Nalco 115,000 Approval obta ined from Cabinet Commit tee on E conomic

Affairs in October 2004. Completion time 50 months.I n d a l 35,000 Relocat ion of pots from Alupu ra m t o Hiraku d at a cost of

Rs. 6 bn. Likely to be on stream by October 2006Balco 250,000 Schedu led to be completed by 2007.

Tota l 415,000 Com piled by IN GRES

ALUMINA SU P P L Y

To produce one tonne of aluminium, around two tonnes of alumina are

required. As status of alumina supply impacts the production capacity ofaluminium in the country, it holds immense importance to the aluminium

industry. Table 7brings out the supply status for alumina in the domesticmarket.

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Table 7: S ta t us of Domest ic Alum ina Sup ply ('000 Tonnes)

Company Locat ion Capaci ty

(2003-04)

P r o d u c t i o n

2002-03

P r o d u c t i o n

2003-04

Capac i ty

Util isat ion(2003-04)

Hinda lco Renukoot (Utt ar

Pradesh)

660 501 591 90%

Nalco Damanjodi (Orissa) 1,575 1,481 1,550 98%

Indal Belgaum (Karna tak a),

Muri (J harkh and)

401 468 492 123%

Balco Korba (Madhya Pradesh) 200 196 203 102%

Malco Chen na i (Tamil Nadu) 80 62 67 84%

Tota l 2,916 2,708 2,903 100%* Estim ated Figures for Balco and Malco com bined

Compiled by INGR ES

The current production of alumina is fairly sufficient to meet the domestic demand

for it. A subs ta nt ial portion of the domest ic alum ina p roduction is exported a s well.

However, given that the domestic alumina industry is currently operating atalmost 100% capacity, the likely rise in aluminium production is expected to exert

pressure on alumina supply as well. The domestic producers have the option to

limit alumina exports and divert the same to meet their aluminium production

requirements. However as margins are healthy in the export market for alumina,

th e alum ina producers h ave chosen t o undert ake capa city expan sions in alum ina

instead. Expansion plans of the domestic alumina producers are listed in Table 8

below.

Table 8: P lan ned Inc rea ses in A lum ina P rodu c t ion Capac i t i e s(in tonnes)

Company Plan ned Addi t iona l Capa c i ty Sta tu s

Nalco 525,000 Approval obtained from Pu blic Invest men tBoar d; final a pproval from Cabinet Comm ittee

on Economic Affair s awa ited

Inda l 1,290,000 To be comm issioned by 2007

Sterlite 1,000,000 Pr oject in Orissa for supply to Balco smelter s.Likely to be commissi oned in 2007.

Hin da lco 40,000 Debott lenecking of existin g refiner y. Likely

comm issioning by 2006.

HindalcoUtkalAluminium Project

1,500,000 To be completed in a time-fra me of 36 mont hs

Tota l 4,355,000

Compiled by INGRES

BAUXITE M INING

India has large high-grade bauxite deposits of around 3,037 million tonnes

(MT), which places the country in the 5th position globally; after Australia,

Guinea, Brazil and Jamaica, in that order. The recoverable reserves are placedat 2,525 MT whereas t he extent of proven a nd pr obable bauxite reser ves is put

Includ es proven, probable and possible bauxite d eposits.

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Page 16

at 1,218 MT. Even at an anticipated consumption of 7 MT per year, these

reser ves would las t for over 350 year s.

About 89% of Indias recoverable bauxite reserves is of metallurgical grade.Orissa, Andhra Pradesh, Madhya Pradesh, Gujarat, Maharashtra and Bihar

are the principal Sta tes where bauxite deposits a re found in th e count ry, with

Orissa a nd Andhra Pra desh a ccount ing for t he bulk of it.

While India has 7.5% of the world's total bauxite deposits, it accounts for just

3% of the global aluminium capacity, which in fact points to significant

potential for capacity additions (to meet both domestic and export demand

over the long term). In other words, there are no major bauxite supply

constraints in India, and aluminium production is more a function of smelter

capa city rat her th an (bauxite) mining capa city.

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C OS T OF P R ODUC I NG AL UMI NI UM

The two technologies commonly used for aluminium production are the Bayer

process (for the production of alumina from bauxite) and the Hall-Heroult

process (for electr olytic redu ction of alum ina to alu miniu m). The key inpu ts inthe manufacturing process are alumina, power and consumables, such as

anodes and caustic soda.

R AW MATERIALS

Bauxite

Indian alum inium pr oducers ar e one of the lowest cost producers of th e met alin the world. The average cost of bauxite production in India is US$5 per

tonne as against the world average of US$20-25 per tonne. Around 80% of

Indian bauxite is highly gibbsitic (i.e. with over 40% alumina) with very low

reactive silica, which allows production of low-cost alumina with the use of the

appropriate technology. Gibbsitic bauxite is found mainly in Orissa andAndh ra Pr adesh , while the bau xite from captive mines (of Hindalco, Balco and

Indal) in Bihar, Madhya Pradesh, Tamil Nadu and Andhra Pradesh contain

15-30% monohydra te a lum ina .

Bauxite deposits a re u sua lly foun d on flat hill rocks, which do not require deepdrilling an d t heir coast al locat ion mak es t he t ran sport at ion economical. There

are 183 bauxite mines under operation in India, of which 173 belong to the

privat e sector. Of th e total r eserves, 89% is of met allur gical gra de.

Alumina

The total installed capacity for the production of alumina in India is nearly

2.90 million tonnes per an nu m (mt pa). Broadly, alum ina can be classified int o:

1. St an dar d alum ina , which is used for th e production of alu miniu m (90%).

2. Special alumina , which is used in n on -met allur gical applicat ions such as

cera mics, insu lat ors an d refra ctories (10%).

Nalco is one of the five leading exporters of alumina worldwide. Indal also

exports alumina, mainly because of its relatively low aluminium capacity. The

other domestic producers, namely, Hindalco, Malco and Balco, use alumina

ma inly for capt ive consu mpt ion.

While till the 1960s, alumina refineries used to be located near smelters,currently the refineries are close to bauxite mines. This shift has been

Bauxite deposits can be classified broadly a s gibbsitic, boehm itic and diaspore, on t he basis of their

structural composition. Gibbsitic bauxite is the relatively low concentrate ore, while the other two are

comparatively richer. However, of the bauxite ores mined, the gibbsitic variety is most abundant, whereas

boehm itic ore is found only in sm all traces, which renders its extraction less economic. Around 80% of

Indian bauxite contains alumina in the gibbsite form, which requires less power for further processing.

Th e digestion of bauxit e with caustic soda is influenced by th e min eralogical composition of bauxite.

Gibbsitic baux ite can be digested at tem peratu res of 105-145C at atm ospheric pressure; boehm itic bauxit e

require tem peratures of up to 240C at high or mediu m pressure.

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prompted mainly by rising transportation and energy costs, besides the need

for refining plants to have long-term contracts with mines (the refineries are

usually designed for bauxite of specific composition). The smelters, on the

other hand, are located near sources of continuous and relatively cheaphydr oelectr ic power.

P O W ER

Power is both the major and critical component in the production ofalum inium . This is so becau se:

Smelters are energy intensive, requiring 15,000-18,000 units of power to

ma nufacture one tonne of aluminium.

Smelters are continuous process plants where sudden stoppages have a

serious impa ct on t he cost of p rodu ction.

Exhib i t 7 : E lect r i c ity Con sum pt ion

Source: annual reports of companies.

All domestic aluminium producers have set up captive power plants instead of

relying on comm ercial power, which is both costly a nd er ra tic. While th e power

consumption per tonne of aluminium by smelters worldwide is around 15,000

kWh, the most efficient Indian producer Nalco consumes 14,600 kwh/tonnewherea s H indalco consu mes 16,240 kwh/tonne (refer Exhibit 7). In addition to

high power consumption per unit of production, the unit cost of commercial

power in India is, on an average, almost 20% higher than that for the rest of

the world. Of the major players, Nalco and Hindalco are among the most

efficient produ cer of cap tive power (refer Table 9). Their unit power cost are

am ong the lowest in th e Indian Alum inium indust ry.

- 5,000 10,000 15,000 20,000

BALCO

MALCO

NALCO

HINDALCO

INDAL

Electricity Consumption per tonne of

Aluminium (Kwh)

FY2004

FY2003

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Table 9: Average Cos t o f Alumin ium Pr oduc t ion Pe r Uni t o f Power(Rs ./ kwh)

Producer E lec t r i c i ty

P u r c h a s e d

Elect r ic i ty

Genera ted

t h r o u g h

Diesel

G e n e r a t o r

Elect r ic i ty

Genera ted

t h r o u g h

S team

G e n e r a t o r

Avera ge Cost Capt ive

C o n su m p t i o n

as % of Tota l

Consumpt ion

Balco6.38 NA 1.02 1.26 96%

Hindalco4.49 6.76 1.01 1.06 99%

Indal

2.82 6.13 1.20 2.21 41%

Malco

31.86 NA 1.44 1.67 99%Nalco

3.27 NA 1.01 1.01 100%Na lco purchases negligible quan tity of electricity for its sm elter at Angul.

Com piled by INGRE S

While most players meet more tha n 90% of their power r equirement th rough

captive plants, Indal still depends on commercial power for more than half of

its total power r equirements. Inda l is ther efore plan ning to expand its captive

power plant to save on power costs. The plans of domestic aluminiumproducers for the expansion of their respective captive power plants are

presented in Ta ble 10.

Table 10 : Capt ive Power P lan t Capa c i t ie s a long wi th P lann ed Inc r eases

Company Capaci ty

(2003-04)

(MW)

Loca t ion P lanned

Addi t ional

Capac i ty(MW)

S t a t u s

Hin da lco 779 Renu koot

(Sonbhadra, Uttar

Pradesh)

41 To be completed in 2006

Nalco 960 Angul (Orissa) 240 Par t of Pha se II expansion

Inda l 167.5 Hir akud (Orissa) 100 To be completed by 2005-06

Balco 270 Korba (Madh yaPradesh)

540 To be completed by 2006.

Malco 75 Mettu r Dam

(Salem, Tamil

Nadu)

Nil NA

Tota l 2251 921Com piled by IN GRES

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O THER C ONSUMABLES

Cau s t i c Soda (NaOH)

Caus tic Soda is used in th e refining of bau xite.

C a l c in e d P e t r o l e u m C o k e (C P C )Calcined Petroleum Coke is used in the electrolysis process to make

alum inium. Around 0.40.5 tonne of CPC is r equired to produce one t onn e

of aluminium. CPC is manufactured by calcination of raw petroleum coke,

which is in t ur n a r efining by-product.

C o a l Ta r P i t c h (C T P )

Coal Tar Pitch is used in the electrolysis process to rejuvenate pre-baked

and soderberg anodes as they get used up in the smelting process. Around

0.1 0.2 tonne of CTP is r equired t o produce one t onne of alu miniu m.

Alumin ium F luor ideAluminium fluoride is used as a flux to reduce bath resistivity in the

smelting process. Around 0.20.03 tonne of aluminium fluoride required to

produce one t onn e of alum inium.

F u e l O il

Fuel oil is used both in alumina plants for conversion into aluminium and

in power plan ts t o generat e power.

S t e a m C o a l

Steam coal is used both in the conversion of bauxite into alumina and for

th e genera tion of electr icity.

An t h r a c i t e Co k e

Anthracite coke is used for the manufacture of carbon blocks, which are

used as lining in alum inium blast furn aces.

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P ROF ITABILITY OF D OME S T I C ALUMINIUM P R O D U C E R S

As discussed earlier, production costs for Indian aluminium manufacturers

are among the lowest in the world. Bauxite mining costs are lower in the

country by global comparison because of the abundance of bauxite reserves,the favourable location of such reserves, and the availability of cheap labour.

However, on th e other h an d, Indian producers h ave higher electr icity costs as

compared with their global counterparts. But on the whole, the lower cost of

ore for Indian aluminium players more than compensates for their higher

power cost. Moreover, domestic producers are developing captive powercapacities to lower their costs further. Table 11 and Table 12 below present

the operating an d net m ar gins r eported by domestic alum inium producers

over last six year s.

Table 11 : Opera t ing Marg ins o f Domest i c Alumin iu m P rod ucer s

Company 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Hin da lco 37% 34% 42% 46% 45% 44%Nalco 45% 39% 37% 48% 45% 33%

Inda l 16% 12% 14% 16% 16% 16%

Balco 8% 11% -1% -3% 12% 14%

Malco 23% 28% 21% 26% 29% 24%Compiled by INGRES

Table 12: Ne t Marg ins o f Domest i c Alumin iu m Pr odu cers .

Company 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99

Hin da lco 14% 14% 28% 30% 31% 32%

Nalco 24% 20% 22% 29% 26% 18%

Inda l 8% 6% 8% 10% 9% 7%

Balco 8% 8% 3% -2% 7% 10%Malco 12% 12% 6% 11% 8% 21%Compiled by INGRES

Nalco, with its most efficient aluminium smelter among all domestic

producers, has the highest operating margins in the industry. Its mines have

richer bauxite reserves as compared with those of its counterparts. Moreover,

Nalco consumes least power per unit of aluminium production in the domesticaluminium industry. Also, Nalco sells over 50% of its total alumina

production, which fetches higher margins as compared with primary

aluminium.

Among oth er pr oducers, Inda ls ma rgins a re lower a s compa red with Hinda lco,Nalco and Malco as Indal meets over 50% of it power requirements through

externa l purcha ses even as th e oth er pr oducers dra w over 90% of their power

requirement s from t heir captive power plant s. Also, Indal ha s lower ma rgins

as it has to procure 20-30% of its total primary aluminium requirements for

downstream products from external sources. Indal is in the process ofincreasing its captive power capacity by 100 MW (project to be completed by

2005-06) so as to lower its production cost. It also plans to increase its

smelting capacity by 35,000 tonnes by 2005 (by relocating the pots from

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Alupuram to Hirakud at an outlay of Rs. 6 bn.) to meet its downstream

requirements.

Balco has the lowest margins among all domestic producers because itconsumes the highest power per unit of aluminium production and has high

employee cost s. Dur ing F Y2004, it offered VRS t o its em ployees. Hen ce, th e

employee cost s in FY2005 is expected t o be lower.

During 9M FY2005, the domestic demand for aluminium increased by over

10% and the production was higher by approximately 6%. Strong metal prices

result ed in th e topline a nd bottomline improvement of the Aluminium ma jors

as shown in t he following ta ble.

Ta ble 13: Y-o-Y Grow th for 9 M F Y2005

Hindalco Nalco

Sa les 34% 35%

Operating Profit 21% 71%

Net P rofit 15% 69%

Compiled by INGRES

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T RENDS IN ALUMINIUM P R I C E S

India accounts for just over 3% of the global capacity for aluminium. So, ithardly influences aluminium prices on the London Metal Exchange (LME).

However, prices on the LME do have an effect on domestic prices, since, on theone hand, they determine the margins of Indian exporters and, on the other,

influence the landed price of imported metal. However, the correlation is

limited because of the duty protection against imports and the low coststr ucture of Indian a luminium pr oducers.

Compiled by INGRES

INTERNATIONAL ALUMINIUM TR E N D S

Internationally, aluminium prices have witnessed a sharp increase since

September 2003 following a surge in global aluminium demand. Exhibit 8

presents the movement of aluminium prices on LME. Aluminium prices onLME a veraged US$1759 in F Y2005 (year to dat e till Febru ar y 2005) an d was

highe r by 18% over t he F Y2004 level.

The main factors driving such sharp increase in global aluminium prices have

been the improvement in the global economic outlook, shortage in

international alumina supplies (Asian deficit is approximately 0.3 mn.

tonnes), incremental demand from Asia (particularly China), and a weak US

dollar (which a lso encour aged speculat ion in m eta l mar kets ). In fact, th e meta l

shortage is the Asian region is estimated to be approximately 4 mn. tonnes

and the shor ta ge is expected to increa se fur th er.

World aluminium production kept pace with the increase in global demand

during FY2004, and manufacturers stepped up production to take advantageof the rising prices. Global aluminium supply increased significantly over the

last year.

China is one of the major suppliers of aluminium in the global market

accounting for around 20% of the total global supplies of the metal. However,attempts are being made by the Chinese Government to curb any further

Exhibit 8: Trend in LME prices of

Aluminium (US$/tonne)

12001400

1600

1800

2000

FY19

95

FY19

96

FY19

97

FY19

98

FY19

99

FY20

00

FY20

01

FY20

02

FY20

03

FY20

04

Q1FY

2005

Q2FY

2005

Q3FY

2005

Jan-05

Feb-

05

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investment in some of its heavy industries. The State Development and

Reform Commission of China issued circulars in March 2004 banning any

investment in the construction of new steel, aluminium and cement plant

across the country. These circulars have also set restrictions on the expansionof existing plant s. It is expected t ha t, becau se of th ese rest rictions on domestic

aluminium production, China may in due course turn into a net importer from

a n et export er, th us caus ing a decline in its supplies of the met al t o the globalmarket.

Despite a decline in supplies from China, the upward trend in global

aluminium supply is expected to continue for some more time. Nevertheless,

capa city const ra ints in alum ina h ave emerged as a cau se for concern. As ma y

be noted from Table 13, world a lumina refineries a re curr ently opera ting a t

97% capacity globally. Thu s, an y significan t increase in a luminiu m productionmay be limited by th e capa city const ra ints in a lumina.

Table 14 : Tren ds in G loba l Alumina Capa c i ty and P r odu c t ion(000 tonn es)

Ye a r C a pa c it y P r o d u ct io n U ti li sa t io n1999 48,490 45,784 94%

2000 51,424 48,119 94%

2001 53,305 48,488 91%

2002 53,532 49,785 93%

2003 55,298 52,555 95%

2004 56,466 54,872 97%Source: International Alum inium Institute

DUT Y STR U C TU R E

The custom duty on aluminium has been gradually brought down over theyears a s shown in t he following cha rt.

Exhibi t 9

Trend in Custom Duty on Aluminium

0

5

10

15

20

25

30

35

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006

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In the FY2006 budget, the custom duty was reduced from 15% to 10%. This

resulted in th e lowering of the landed cost of aluminium by ar ound Rs.

5000/tonne. The current duty structure for aluminium ores and products is

pres ent ed in th e following ta ble.

Table 15 : Cus tom Du t ie s on Alum inium Or es and P rod uc t s(%)

Basic Custom sD u t y

Counte r va i ling Duty(CVD)**

EffectiveD u t y

Ore (Bauxite) 5 0 5

Unwrought bars and rods,profiles, wires, plat es, sheets ,str ips, tubes, pipes, etc.

10 16 27.6

Waste and scrap 10 16 27.6** Th e CVD rate is the sam e as the excise rate [or the Central Value Ad ded T ax (VAT) rate]

Com piled by IN GRES

Ta ble 16:

Exc i se Dut i e s in Ind ia on Alum inium an d i t s P rodu c t s (%)

The e x c i s e d u t y in India on

aluminium and its products

was very high till FY1993.Subsequently it was reduced

to a uniform 15% in FY1996.

In FY2000, as part of the

process of ra tiona lising excise

duties, the duty onaluminium was increased

marginally to 16%. InFY2001, the excise ra tes wer e Com piled by IN GRES

rationalised for all products across the board to 16%; there have been no

cha nges in th e excise duties since then.

DOMESTIC P RICING OF ALU M IN IU M

Domestic aluminium prices are determined on the basis on landed cost of

imported a lumin ium besides th e cost of production of domest ic producers. The

high import duties on aluminium in India keep the landed cost significantlyabove the international prices. Also, as the gross margin available to domestic

aluminium producers ranges from 10% to 40% (refer the section titledProfitability of Domestic Producers), the domestic prices are somewhat lower

than the landed cost of imported aluminium. Exhibit 9below compares the

movement among domestic and intern at ional a luminium prices since J anu ary2003.

The landed cost of imported aluminium is the total cost that needs to be incurred to import aluminium

includin g all incidental expenses such as ban k charges, freight, insuran ce and labour.

Year Metal Foils Sheets Bars

/rods

Wires

1989 13.6 15.8 15.8 18.9 21.01990 29.2 26.2 15.8 27.3 27.31991 29.2 26.2 15.8 27.3 27.31992 29.0 27.5 16.5 38.5 27.81993 30.3 28.8 17.3 40.2 29.0

1994 25.0 25.0 15.0 25.0 25.01995 20.0 20.0 15.0 20.0 20.01996-98 15.0 15.0 15.0 15.0 15.01999-2004 16.0 16.0 16.0 16.0 16.0

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Exhib i t 10: Compa r i son of Domest i c Alumin iu m P r ices w i th In te rn a t iona l

Al u m i n i u m P r i ce s

Compiled by INGRES

60,000

70,000

80,000

90,000

100,000

110,000

Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04

Rs/Tonn

e

LME Price Landed Cost Domestic Ingot Prices

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IM P O R T AN D E XP ORT MARKETS

IMPORT MARKETS

In 1989, following decontrol of the domestic aluminium industry, imports of

aluminium were permitted under Open General Licence (OGL). Althoughdomestic alum inium production exceeds th e domestic demand, In dia imports

an average 15-20% of the total domestic supply of aluminium. Moreover, the

net landed price of the imported metal exceeds domestic prices by Rs 10,000-

15,000 per tonne. H owever, import s ar e still necessary becau se of th e short age

of domestically produced ingots. Since most domestic primary producers havetheir own downstream capacities, their captive consumption is significantly

high. Thus there is shortage of ingots for standalone secondary producers in

India.

Table 17 : Trend s in Imp or t s o f Alumin ium & Aluminium Pr oduc t s by In d ia(Tonnes)

FY1998 FY1999 F Y2000 F Y2001 F Y2002 FY2003FY2004 Q1 F Y2005

110,959 159,384 144,133 126,021 203,554 192,277 216,787 59,767S ource: Departm ent of Com m erce, Governm ent of India

Table 16 presents the trends in Indian aluminium imports. The country

imported over 0.2 mn . tonnes of alum inium an d aluminium pr oducts during

FY2004. The imports witnessed growth at a CAGR of 11.8% during FY1998-

2004.

EXP ORT MARKETS

India has been exporting a considerable part of its aluminium production.Since the Indian producers are among the least cost producers of the metal,they have a global cost advantage. Hence, aluminium is exported at profitable

margins. For trends in aluminium exports by India refer Table 17. The exports

witnes sed growth at a CAGR of 7.3% dur ing FY1998 -2004.

Table 18: Tren ds In Exp ort s of Alumin ium & Alumin ium p rod ucts by In dia(Tonnes)

F Y1998 F Y1999 FY2000 FY2001 FY2002 F Y2003 F Y2004 Q1 F Y2005

137,615 71,838 142,079 184,257 191,557 203,803 209,623 40,469S ource: Department of Comm erce, Governm ent of Indi a

Indian aluminium producers have plans to further expand their productioncapa cities (Capacities ma y be increased by 50% in next 5 years ). However, it is

unlikely th at th e domest ic deman d for t he met al would ma tch th e increas e in

production. In such a scenario, Indian producers will thus focus more on

export of the met al.

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O UT L OOK

With th e expecta tion of a healt hy growth in t he coun tr ys GDP, domestic

demand for aluminium is likely to increase. Thus, the outlook for the

aluminium industry remains positive for the near future. The sectors that are

likely to drive the expected increase in aluminium demand include

construction, automotives and consumer durables. The enactment of theElectricity Act, 2003 is also expected to provide a boost to aluminium demand

eman at ing from t he domestic power sector.

Moreover, India has large untapped demand potential for aluminium, as

evident from t he coun tr ys low per capita consum ption of th e met al. Also, with

th e uses of aluminium increasing, given its versat ility, th e dem an d potent ial is

likely to increase furt her .

Besides the likely increase in domestic demand, Indian producers ofaluminium are also expected to benefit from the likely rise in international

demand for the metal. Already, growth in global demand has outpacedincrease in aluminium supplies even as fresh requirements, especially from

the American and Chinese economies, are set to push up the demand levels

further .

On the supply side, the main constraint is the limited global capacity for

alum ina. The emerging deman d -supply scenar io presen ts good prospects for

domestic producers of aluminium. Given the likely demand situation, almost

all the domestic players have already drawn up major expansion plans. Thescope for s tepping up a luminium supplies in th e Indian a luminium indust ry is

significant (as opposed to the situation globally), given the abundance of

bauxite reserves in the country and the adequacy of production capacities.Also, Indian manufacturers are among the lowest cost producers of aluminium

in the world. The country is thus placed favourably both in the alumina andaluminium export m arket s.

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ANNEXURES

ANNEXURE 1

M a n u f a c t u r e of A l u m i n i u m a n d A l u m i n i u m P r od u c t s

Aluminium is manufactured by refining bauxite into alumina, which is furtherdissociat ed electrolytically to produce alu min ium. Th e st eps followed a re

discussed in th e following sections.

1. Ex t r a c t ion of bau x i te

Bauxite is the main ore of aluminium. It is actually a rock mixture

consisting mostly of several hydrous aluminium oxide minerals, andimpurities such as quartz, clay minerals, and iron hydroxides. Bauxite

deposits (found mainly in tropical and subtropical areas) are found in the

form of strata or "pockets", typically around 4-6 metres thick under a

shallow covering of topsoil and vegetation.

Bauxite is generally extracted by open cast mining. The topsoil is taken

away and samples of vegetation carefully preserved and reinstated later.

The bauxite is removed, and t ran sported t o the refinery. Once th e mining

is finished the topsoil and vegetation are replaced.

2. Ref in ing of ba ux i te in to a lumin a

Bauxite is crushed, ground and then dissolved in caustic soda (sodium

hydr oxide) to form a solut ion of sodium a lum ina te. This solut ion is filter ed

to remove any impurities such as undissolved bauxite residues (generally

referred to as red mud). The solution is put in a precipitator where fineparticles of alumina are added to seed the precipitation of pure alumina

particles as the liquor cools. It is then passed through a calciner at very

high temperature to remove chemically combined water. This produces a

white powder called alumina. The residual caustic soda can be reused forth e refinin g process.

Ba u x i t e C r u sh e r D ig e st e r P r e c i p i t a t o r

Fi l ter Calc iner A l u m i n a

3. Smel t ing (e lec t ro ly t i c d i s soc ia t ion ) of a lum ina

The Hall -Hr oult P rocess is used in all primar y smelting plan ts in In dia.

Alumina is dissolved in an electrolytic bath of molten cryolite (sodium

aluminium fluoride) in a large carbon or graphite lined steel container

known as a "pot". A high electric current (typically 150,000 amps) is passed

th rough t he electrolyte a t low voltage. The electr ic curren t flows between a

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carbon anode (positive), made of petroleum coke and pitch, and a cathode

(negat ive) form ed by t he th ick car bon or gr aph ite lining of th e pot. Molten

alum inium is deposited at th e bott om of the pot.

There are two main types of smelter technologies: Sderburg and Pre-bake.

The principal difference between the two is the type of anode used. The

Sderbu rg technology uses a cont inu ous an ode which is delivered t o th e cell(pot) in the form of a paste, which bakes in the cell itself. Pre-bake

technology, on the other hand, uses multiple anodes in each cell, which are

pre-baked in a separate facility and attached to "rods" that suspend the

anodes in the cell. New anodes are exchanged for spent anodes ("anode

butts"). At present, Pre-bake technology accounts for over 70% of the

smelt er technology used globally.

4. S e c on d a r y P r o c e ss in g

Alum inium is processed fur t her into bars, r ods, billets, plates, sheet s, foils,

etc. Aluminium is also alloyed with different metals such as iron, silicon,

zinc, and copper to strengthen or enhance properties. Processes likecasting, rolling, extrusions, forging, welding, and adhesive bonding are

us ed to produce var ious seconda ry products.

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aluminium 200503

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