Market Overview
A majority of the metal production from our Indian operations is sold in the Indian market – about 60% presently and the rest is exported to growing countries in proximity to our operations, such as Far East, South East Asia, Middle East, China, Africa and Europe. We produce globally required commodities and our focus on target markets is largely driven by optimisation of freight cost, market size and growth potential. Iron ore exported out of India caters to several steel plants spread across China, Japan, Korea and South East Asia. The locations of our plants provide us with easy access and the advantage of low freight cost to the fastest growing markets including India, the home market for our Indian operations.
India
India’s GDP in FY2009 was 7.5% and is expected to be between 6% –7% in FY 2010 and 2011. The acceleration of growth in recent years was driven by favourable domestic structural factors coupled with strong foreign capital inflows and global cyclical uplift. The structural foundation of India’s economic growth remains intact. The sharp acceleration in infrastructure spending has been a key driver of elevated GDP growth in recent years.
While India has become more integrated with the rest of the world, its export-to-GDP ratio remains lower than those of other Asian countries. India’s total exports account for around 20% –22% of GDP compared with anywhere between 40% –60% for other Asian economies including China, Korea and Taiwan. India is therefore less exposed to the slump in external demand. The 11th Five Year plan of the Government of India provides for a total infrastructure spend of nearly US$500 billion in several areas including power, roads, railways and telecom. India’s per capita metal consumption is comparatively much lower than developed countries and coupled with a huge infrastructure spend plan indicate a strong growth potential.
We believe these positive factors will enable us to continue to sell a majority of our metal production in India.
Aluminium
Following six years of strong growth
in aluminium, led by the emergence
of China, growth in demand in 2008 is
estimated to have barely been positive.
Global aluminium consumption
was 38.2Mt in CY2008, expected to
decrease 3.4% to 36.9Mt in CY2009.
The effect of the global financial crisis
which began in late 2007 and the impact
of the fall in the US housing market
have been sharp. Chinese aluminium
consumption in CY2009 is forecast
to grow only 2.5%, because of falling
exports and lower domestic growth.
Brookhunt predicts that although demand is expected to be muted in CY2009/2010, demand is expected to grow by 6% in 2011 and by 6.5% in 2012. The production curtailments, large stock drawdown and strengthening demand growth in 2011 and 2012 are also expected to precipitate a positive price response going forward.
A factor that will support prices is the fact that the industry cannot operate for an extended period with ~40% of the industry currently cash negative on an ingot basis. Prices in CY2009 are expected to rise gradually as production curtailments bring supply more in line with demand.
