Aluminium Sector - Industry Inputs

The aluminium industry in India can be classified as: Captive power, ample bauxite reserves, coupled with cheap labour costs make Indian companies amongst the most competitive aluminium producers globally.

The main raw material for the manufacture of aluminium include bauxite, caustic soda, calcined petroleum coke, coal tar pitch, and LS/FS furnace oil. The production process for manufacture of aluminium is briefly outlined below.

The mined bauxite ore is mixed with caustic liquor and is refined to produce alumina. This is then smelted (through electrolysis in a smelter) to obtain aluminium. Depending on the quality of bauxite, 2.5 – 3 tonnes are required for manufacture of 1 tonne of alumina. In turn, 2 tonnes of alumina are required for manufacture of 1 tonne of aluminium.

Bauxite
Indian bauxite reserves at 3 bn tonnes, are the 5th largest in the world, and account for 6% of total world reserves. Most alumina refineries are designed around the bauxite reserves to reduce transportation costs. Cost per tonne of bauxite varies for players depending on the location of the refinery and bauxite mines.

For example, Nalco has an estimated 1,600 m tonnes of bauxite reserves only 20 kms from its alumina refinery, enabling it to become one of the most economical bauxite producers in the world.

Although domestic producers are self sufficient in alumina, the setting up of independent aluminium smelters all over the world and cut backs in European and American alumina production have resulted in alumina gaining importance as an internationally traded commodity. This has also been helped by the relocation of smelters based on the availability of cheap power. About 40% of alumina production is traded between unrelated parties. Alumina prices generally depend on the demand/supply and on the prices of aluminium. Bauxite is the single largest cost item for the manufacture of alumina giving India a competitive advantage. With this in mind, MoUs are being signed by companies to set up alumina plants in bauxite-rich states like Orissa.

Power
Power constitutes the single largest cost component for aluminium manufacturers (35-40% of operating costs). Almost all the major Indian companies have captive power plants thus giving them access to cheap power. This makes India one of the most competitive low cost aluminium producers in the world.

Hindalco and Nalco’s production costs are amongst the lowest in the world. Both companies have the advantage of 100% captive power, vital in a power intensive industry and in a power deficit country like India.