Aluminium Sector - Industry Structure

The aluminium industry in India can be classified as:
(a) The primary producers who produce ingots and billets (primary form of aluminium) using bauxite.
(b) The secondary producers who add value to the ingots and billets to produce semi-fabricated products

At present there are only five companies in the primary aluminium market viz. Hindalco, Indian Aluminum (Indal), Madras Aluminum (Malco), National Aluminum (Nalco) and Bharat Aluminum (Balco). The former three are private sector companies while the latter two are government owned.

All the primary producers have integrated forward into the manufacture of high value semi-fabricated products like rods, rolled products, extrusions and foils.

Regulated till 1989
Until 1989, the Aluminum Control Order (ACO) required all domestic manufacturers to ensure that atleast 50% of their ingot production was electrical grade, for use by the transmission power industry. The government fixed ingot prices on the basis of a Retention Pricing Mechanism, taking into consideration the average retention prices of all producers and a minimum return on equity.

The above control resulted in a skewed product mix and shortages of aluminum for other sectors. The problem was further compounded by the vulnerable financial position of State Electricity Boards (the main users of electrical grade aluminum) and high import and excise duties. The producers resorted to inflated prices for other types of aluminium to compensate for the disadvantages they suffered because of this regulation.

The ACO was scrapped in 1989 and in 1991 the government lifted restrictions on capacity additions resulting in a free market environment.