Aluminium Sector Analysis Report 

Don't Miss: Key Information for Long-term Investors

• Aluminum is the second most used metal in the world after steel with an annual consumption of approximately 65 million tonnes (including scrap). It is also the fastest growing metal which has grown by nearly 20 times in the last sixty years (compared to 6 to 7 times for other metals).
• India is the fourth largest producer of aluminium in the world with a share of around 5.3% of the global aluminium output. It has nearly 10% of the world's bauxite reserves and a growing aluminium sector that leverages this.
• India also holds a fair advantage in cost of production and conversion costs in alumina. Moreover, rise in infrastructure development and automotive production are encouraging development in this sector within the country.
• The Indian aluminium industry mainly consists of - primary aluminium, aluminium extrusions, aluminium rolled products and alumina chemicals. The industry meets the requirements of a wide range of industries including engineering, electrical and electronics, automobile and automobile components, etc.
• The principal user segment of the aluminium industry in India continues to be the electrical and electronics sector followed by automotive, transportation, building, construction, packaging, consumer durables, industrial and defence.
• 100% FDI is allowed in the mining sector under the automatic route to explore and exploit all non-fuel and non-atomic minerals. According to data released by Department for Promotion of Industry and Internal Trade (DPIIT), Indian metallurgical industries attracted Foreign Direct Investment (FDI) to the tune of US$ 13.4 billion in the period April 2000-March 2020.

• Supply
• Supply of primary aluminum is in excess as India is one of the largest producers of primary aluminium. However, due to limited scope of value addition within the country, primary aluminium producers export large quantities of primary aluminium products and companies import a sizeable quantity of downstream products.
• Demand
• Aluminum consumption in India at 2.7 kg per capita is much below the global average of 11 kg per capita. Demand for the metal is expected to pick up as the scenario improves for user industries, like power, infrastructure and transportation.
• Barriers to entry
• Large economies of scale, high capital costs, scarcity of power, land and labour issues.
• Bargaining power of suppliers
• Most domestic players operate integrated plants. Bargaining power is limited in case of power purchase, as Government is the only supplier. However, increasing usage of captive power plants (CPP) will help to rationalize power costs to a certain extent in the long-term.
• Bargaining power of customers
• Being a commodity, customers enjoy relatively high bargaining power, as prices are determined on demand and supply.
• Competition
• Competition is primarily on quality and price, as being a commodity, differentiation is difficult. However, the recent spate of consolidation has reduced the competitive pressure in the industry. Further, increasing value addition to aluminium products has helped some companies protect themselves from the high volatilities witnessed in this industry.
• Threat of Substitutes
• Copper can replace aluminium in electrical applications, magnesium, titanium and steel can substitute for aluminium in structural and ground transportation uses. Glass, plastic, paper and steel can substitute for aluminium in packaging.

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• In CY22, global primary aluminium production increased by 2.5% to 69 million tonnes while demand increased by 0.4% to 69.2 million tonnes resulting in a global deficit of 0.2 million tonnes.
• The aluminium market started on a positive note with LME prices steeply rising to an all-time high of US$3,849/t in March 2022. However, the market was significantly impacted by volatility in macroeconomic conditions during the year amidst the ongoing Russia Ukraine war, European energy crisis, and high inflation in the key markets. Consequently, the market witnessed price declines as the year progressed; LME price stood at around US$2,350/t level during the end of March 2023.
• In China, the largest market, primary production increased by 4.5% while demand increased by 1.2%. In the rest of the world (RoW), both production and consumption were flat.
• In India, the production of aluminium stood at 3.5 m tonnes in FY23. Domestic demand surged 17% from 3.9 m tonnes in FY22 to around 4.6 m tonnes majorly driven by primary aluminium demand on robust economic growth with high industrial and manufacturing activities supported by government initiatives.
• In July 2022, Hindalco Industries signed an MoU with Phinergy and IOC Phinergy Private Limited (IOP) on R&D and pilot production of aluminium plates for Aluminium-Air batteries, and recycling of aluminium, after usage in these batteries.

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• Rise in infrastructure development is expected to drive growth in the aluminium sector. Demand for aluminium is expected to pick up as the scenario improves for user industries like power, infrastructure and transportation.
• The Government of India's "National Mineral Policy" is expected to bring more transparency, better regulation and enforcement, balanced socio-economic growth along with sustainable mining practices in the aluminium sector.
• Domestic demand is likely to remain robust driven by construction and packaging.
• The increasing share of imports of aluminium products, including scrap, will continue to be a major concern for domestic aluminum producers. Over the last few years, the domestic rolled products industry has been witnessing an increase in dumping of imports especially from China, at unfair prices leading to the pricing pressure.
• The adoption of strong, lightweight and formable aluminium sheets in vehicle parts and structures is driving growth in the automotive body sheet segment. This market is expected to record growth, despite some recent softening in European and Chinese demand.
• The Indian government has plans to invest over US$ 1 billion in its "Make in India" initiative. The aluminium industry will benefit from this as there is great demand to build new production facilities.

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How has the aluminium sector performed in the past decade and when is a good time to invest in the sector?

The aluminium (metals) sector has provided investors healthy returns of over 200% over the past decade.

Aluminium stocks are usually risker as their fortunes are prone to economic booms and busts and for this reason, they are often called cyclical stocks. Generally considered an offensive tactic in investing, cyclical stocks can be used to generate high returns when the economy is doing well.

Therefore, the best time to buy such stocks is at the start of an economic expansion and the best time to sell them is just before the economy begins to slow down. However, before selecting a stock, one must check whether the industry is due for revival or not.

To know more about the sector's past and ongoing performance, have a look at the performance of the NIFTY Metal Index and BSE Metal Index

Where can I find a list of aluminium stocks?

The details of listed steel companies can be found on the NSE and BSE website. However, the overload of financial information on these websites can be overwhelming.

For a more direct and concise view of this information, you can check out our list of aluminium stocks.

Which aluminium stocks were the top performers over the last 5 years?

Hindalco has been one of the top performers over the last 5 years in terms of sales and profit growth.

Hindalco's growth can be primarily attributed to the company's leadership position in India's aluminium industry and being one of the lowest cost producers for aluminium in the world along with a highly reputed promoter group (Aditya Birla Group).

To know which other companies performed well over the last 5 years, use Equitymaster's stock screener.

What kind of dividend yields do aluminium stocks offer?

There is no consistent trend of dividends across the industry, with different companies having different dividend policies.

For more details, check out our list of top aluminium stocks offering high dividend yields.

Which are the aluminium stocks with the highest return on capital employed (RoCE)?

Return on capital employed (ROCE) is a financial ratio that can be used in assessing a company's profitability and capital efficiency by determining how well the management is able to allocate capital for future growth. An RoCE of above 15% is considered decent for companies that are in an expansionary phase.

Maan Aluminium and Hindalco are the top aluminium stocks right now on the Return on Capital Employed (RoCE) parameter.

To know which other aluminium stocks offer great return on capital employed, you can check out the top aluminium stocks offering the best RoCE here.

Which are the best aluminium stocks to invest in currently?

Investing in stocks requires careful analysis of financial data to find out a company's true worth. However, an easier way to find out about a company's performance is to look at its financial ratios.

Two commonly used financial ratios used in the valuation of stocks are -

• Price to Earnings Ratio (P/E) - It compares the company's stock price with its earnings per share. The higher the P/E ratio, the more expensive the stock.

  To find stocks with favorable P/E Ratios, check out our list of aluminium stocks according to their P/E Ratios

• Price to Book Value Ratio (P/BV) - It compares a firm's market capitalization to its book value. A high P/BV indicates markets believe the company's assets to be undervalued and vice versa.

  To find stocks with favorable P/BV Ratios, check out our list of aluminium stocks according to their P/BV Ratios

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