- Aluminum demand in India is expected to recover due growth in power and automobile segments, but profitability will be under pressure for the domestic players due to high input costs.
- In 2013-14 decrease in demand of power cables and conductors, and a decline in auto led to a decline in aluminum demand. This was augmented by the low production in as producers were facing an acute shortage of coal and availability of power.
- Since 40% of India’s aluminium demand depends on the power segment, the demand has remained relatively stable. Along with automobiles and construction, this accounts for nearly 80% of aluminum consumption.
- The capacity is likely to be doubled, the bulk of it belonging to Hindalco and Vedanta.
- Meanwhile, a shortage of coal linkage is leading to decreased production as this increases the costs of production.
- Additionally, lack of access to captive bauxite, raw materials linkages plague the new smelting capacities despite expectation of a gradual improvement in supplies.
- In contrast to India, global demand is likely to come down as China shifts from an investment-driven to a consumption-driven economy, and also due to increased capacity addition and lukewarm demand.
- However, the global demand-supply situation may stabilize with production cuts across regions due to rising input costs and low prices. This will provide support to aluminum prices.
- Earnings before interest and tax (EBIT) margins of Indian players are estimated to experience a steep fall and will continue to remain under pressure due to higher input costs.
- Domestic players will have to focus on exports to maintain utilisation rates, secure raw linkages and be cost-competitive to tackle profitability.
- Read at:http://www.thehindu.com/todays-paper/tp-business/pressure-on-profitability-to-continue/article6139943.ece
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