INCAL 2007

India's role in the Aluminium World of tomorrow

D.Bhattacharya
President, AAI
MD, Hindalco Industries
Vice Chairman, Novelis
India as a Desired Destination
Emerging Market Growth : 1980 – 2005

2,700 PPP adjusted GDP ($ bn) China

2,400

2,100
(1980 = 100)
1,800

1,500 Korea

1,200 Taiwan
India
900

600 United States

Japan
300 Euro Area

-
1992

1994

1996
1980

1990

2002

2004

2006
1982

1984

1986

1988

1998

2000
Emerging economies amongst the fastest growing 3
Global growth driven by developing nations
Average GDP Annual Growth –2000-2007
Former USSR Countries
14.7
14.3

Asian Countries

9.5 9.7

6.6 6.7

5.4 5.4 G7 Countries

5.0

2.7 2.8 3.0

2.0 1.9
1.2 1.2

an
sia

n
y

n
na

an

a
es

a
ly

n
m
a

ce
a

an

ija

ta
ad

pa

si
di

si

Ita
do

st
st

at
hi

an
ay

us

is
ne
In

ba
m

Ja
an

kh
ki
C

St
ng

en
Fr
al

R
er
do

Pa

er
C

za
M

Ki

m
G

Az
In

te

Ka
rk
d

ni
te

Tu
U
ni
U

Source: IMF World Economic Outlook 2006 - GDP Growth (Constant Prices, Local Currency)

World GDP growth to remain ~5% over next 5 years, ~4% to 2030 4
Phases of economic growth

GDP at Factor Cost

Rs. Bn
20,000 CAGR = 6.9%

15,000
CAGR = 5.5%

10,000
CAGR = 4.5%

CAGR = 3.4%
5,000

-
1

7
-5

-5

-6

-7

-9

-0

-0
-7

-8
50

57

64

71

78

85

92

99

06
19

19

19

19
19

19

19

19

20
India: Accelerating growth over the years 5
India Reforms: Slow but a steady progress

 Industrial
Industrial licensing
licensing systems
systems
 Distribution
Distribution Controls
Controls
1950
1950 –– 1985
1985  Restrictions
Restrictions on
on Foreign
Foreign investments
investments
License
License Raj
Raj  Fiscal
Fiscal controls
controls
 Financial
Financial market
market Controls
Controls
 Stringent
Stringent labor
labor laws
laws
 Easing
Easing of
of administrative
administrative and
and fiscal
fiscal controls
controls
 Access
Access to
to global
global technology
technology
1985
1985 –– 1991
1991  Pricing
Pricing and
and distribution
distribution controls
controls eased
eased in
in some
some sectors
sectors
Piecemeal
Piecemeal  Taxes
Taxes reduced
reduced but
but still
still higher
higher than
than global
global levels
levels
Deregulation
Deregulation
 However:
However:

 Industrial
Industrial licensing
licensing systems
systems persisted
persisted

Restrictions
Restrictions onon Foreign
Foreign investments
investments continued
continued
6
India Reforms: Accelerating the pace of reforms

 Industrial
Industrial licensing
licensing abolished
abolished
 FDI
FDI policy
policy introduced
introduced
 Trade
Trade liberalization
liberalization commenced
commenced
1991
1991 –– 1995
1995
 Capital
Capital Market
Market Reforms,
Reforms, FII
FII investments
investments allowed,
allowed, access
access to
to
global
global capital
capital permitted,
permitted, SEBI
SEBI instituted.
instituted.
 Currency
Currency convertibility
convertibility on
on current
current account
account

 Introduction
Introduction of
of CENVAT
CENVAT inin lieu
lieu of
of Excise
Excise Duty
Duty
1995
1995 –– 2000
2000
 Income
Income Tax
Tax rates
rates reduced
reduced
 Privatization
Privatization of
of state
state owned
owned enterprises
enterprises
 Equity
Equity derivatives
derivatives introduced
introduced
2000
2000 –– 2007
2007  Lowering
Lowering customs
customs duty
duty
 Autonomous
Autonomous market
market regulators
regulators –– TRAI,
TRAI, IRDA,
IRDA, CERC
CERC etc.
etc.
 Introduction
Introduction of
of VAT
VAT in
in lieu
lieu of
of State
State Sales
Sales Tax
Tax 7
Net Result: Rising savings and investments (both
domestic and foreign)
Savings and Investments
FDI (US$ bn)
(As % of GDP)
$ 19.5 bn
35% 34% 20
GDS GCF
32%
30% 16

25% 12

20% 8

15% 4

10% 0
1970-71

1975-76

1980-81

1985-86

1990-91

1995-96

2000-01

2005-06

1990-91

1992-93

1996-97

1998-99

2000-01

2004-05

2006-07
1994-95

2002-03
8
 -
50
100
150
200
250
1970-71

1973-74

1976-77
barriers
1979-80

1982-83

Exports
1985-86

1988-89

1991-92
Imports

1994-95

1997-98
Trade volumes (US$ bn)

2000-01

2003-04

2006-07 P
190.6

126.3

5%
15%
25%
35%

1995-96
29%

1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
Net Result: Rising trade volumes with reducing

2003-04
(As % of Imports)
Customs collections

2004-05
2005-06
2006-07
9
10%
Net Result: Increasing bank lending with
reducing interest rates
Interest rates
Banking Non Food Credit (Rs. Crs)
(10 year G-Sec yield)
2,000 1882 14

1,800
12.18%
12
1,600

1,400 10

1,200 8 7.78%
1,000
6
800

600 4
400
2
200

- -
1973-74

1982-83
1985-86

1994-95
1997-98

2003-04
2006-07
1970-71

1976-77
1979-80

1988-89
1991-92

2000-01

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07
One of the finest banking systems in the world 10
 Significant improvement in social norms
(%)
Poverty Rates* (Per ‘000 births)
Infant mortality rates
60 150

146
50 125

40 45.31% 100

30 75

26% 63
20 50

60

80
70
50

90

00
60

80

90

00
50

70

19

19

19
19

19

20
19

19

19

20
19

19

75
(%) Literacy rates 30% Urban Population
29%
60 25%
64.84
45
20%
30 20
18.33
15% %
15

0 10%
0

90

00

05
50

60

70

80

90

00

20
19

19

19

20
19

19

19

20
19

19

_____________
threshold as defined by the Government: Income of Rs.296 per month in Urban areas and Rs.276 per month in Rural are
11
orld Bank Reports
India and China: Can India match the pace of
China?
GDP per capita at PPP (US$)
GDP per capita at PPP (US$)
(India with a time lag)
8,000
China 7204 8,000 China 7204

India India
6,000 6,000
?
4,000 3344
4,000
3344

2,000 2,000
_____________________
India: 1990-2005
China: 1980-2005
-
-
1 6 11 16 21 26
1980

1985

1990

1995

2000

2005

No, of Years

India: lagging China by 10 years 12

India and Aluminium
 Aluminium: The fastest growing industrial metal
in the world

10.00
Aluminium
Growth Multiple

7.50

5.00
Copper Nickel
2.50 Zinc
Steel
- Lead
1960

1970

1985

2000
1965

1975

1980

1990

1995

2005
Tin
Tin Lead Crude Steel Zinc Nickel Copper Aluminium

_______________________
Source: Australian Commodity Statistics 2005, Barclays Capital
14
 World Aluminium - Stronger growth projected
till 2015

4.76%
Industrial Metals Growth: 25 years (1980-2005) CAGR

3.0%
2.4%
1.9% 2.1%
1.8%
1.3% 1.2%

Tin
Zinc

Lead
Crude
Nickel
Copper

Steel

Aluminium
Aluminium

2005-2015

Demand
_______________________
Source: Australian Commodity Statistics 2005, Barclays Capital, Metal Bulletin

Asian consumption growth to drive global demand 15

India’s Position in World Ranking

6th Largest 8th Largest 5th Largest

Alumina Producer Aluminium Producer Aluminium Consumer
Australia China
China
China
Russia USA
Brazil
Canada Japan
USA
USA Germany
Jamaica
India
Australia
India South
Brazil Korea
Russia
Italy
Norway
Suriname
CIS
India
Venezula
Brazil
South
Ireland Africa Canada

Ukrain Dubai
France
Kazakhist
an Bahrain
Spain

Others Others Others

0 5000 10000 15000 20000 0 5000 10000 0 5000 10000 16

Leadership in cost and profitability
Amongst low cost Amongst most profitable
producers globally in the sector
3000 US$/t Aluminium EBITDA Margins (%)
Leading
2500 Leading Indian
International
Companies
Companies
2000

1500

48
1000 43 42
34 35

500 16

Company D

Company E
46%

66%
72%

90%

Company A
16%

37%

61%

78%
84%

95%
99%

Company C
0%

28%

55%

Company B

Company F
(% of World Production)
______________________________________________ __________________________________________
Source: CRU Aluminium Smelting Costs 2007 Source: Company annual reports

Mainly due to fully integrated upstream operations 17

Attractiveness of India as a
Manufacturing Centre
Aluminium Production – Cost structure remains
key
 Aluminium production shifting from
Others
11% the west to east
C arbon
10%  Rising power costs in the west
Alumina, Power & Alumina
43%  Alumina prices and logistics
Labour are the
main components
 Sharp rise in labour costs
~ 80% of total cost
Power
27% 2006
(33,815 kt) Europe
Labour 27%
9% 1980
(18,500
kt) America
 Alumina, Power & Labor form 80% of 23%
total metal production cost Oceania
40% 7%
 Bauxite availability key to alumina 6%
production Africa

37%
 Power costs decide new smelter 3% 37%
Asia
locations 3%
17%
19
Costs moving up consistently

Overall industry cost curve is Breakup of cost 1994 v/s 2006

moving upward
1800 Liquid Metal Cash Cost ( USD/ Tonne )
Others
1600 35%

1994 1998 2002 -1% Repairs & Maintainence

2500 1400

2004 2006 2007 107% Labour

1200
6%
Cash Cost of Production

2000

USD/ Tonne
1000 Anode

800 Power
61%
1500
600
Alumina

400
1000
200 80%

0
500 1994 Year 2007
% of World Production

The costs moving up by 36% at the lower end Total cash cost moved up by 58%
of the curve and 42%at the higher end 20
India Advantage – Bauxite
Proven & Probable Bauxite Reserve
Low Mining and Refining Cost
(Mn MT)
Australia 8700

Guinea 8600

Jamaica 2500  Low mining cost (US$22/t)

Brazil 2500

China 2300  Low reactive silica leading to low

India 1400
refining cost
Guyana 900
*
Greece 650

Suriname 600

Venezuela 350

Russia 250

*Total in situ reserves estimated at 3,076 Mn MT

_____________ __________________
Source: AME Source: Brook Hunt 21
India Advantage – Power
Attractive Power Centres Coal Reserves
Country Hydel Coal Gas

Qatar  300
Oman 
Saudi Arabia  250
250 Billion ton
Iran 
India 
200
Indonesia 
South Africa  160
Algeria  150
120
Nigeria 
Cameroon  100 92
75
Russia  
Brazil  50
45
Venezuela  
Trinidad 
0
Australia  

ia

ca
SA

a
a

na

di
si


al
Iceland

fri
hi
U

us

In

tr

A
C

us
R

h
 

A
Malaysia

ut
So
India has 4th largest coal reserves; but
22
low calorific value
India Advantage – Labour

23

20.5
Labour Cost 2004-2014E
18.9
$/hr 18.7
17.5
15.9 15.7 15.9
2004 14.8 14.4

2009
11.6
11.2
10.2 10.1
2014 9.1 9
8.5
7.1

1.2 1.3 0.9 1.1 1.3

0.7 0.9 0.7 0.9

India China S.E.Asia Taiwan Korea ANZ Japan Germany US

Source: Alcoa

Labour makes up 8% of Production cost - $150/t advantage!!! 23

Scope for major growth in per capita
consumption

Kg Per Capita 32.9 33.8

31.7
30.5
28.1

20.8

8.5
4.5
1.3

Japan
Brazil

Italy

Germany
France

Canada
India

China

USA

China had 1.3 Kg per capita consumption in1990-91 24

Change in consumption pattern to accelerate
growth
India Picture World
(%)

19 17 18 16 18
21
28
4
6 8 6 8
6 9
6 10
6 8 11
6 18
8 15
7 8 10
2 11
8
21 21 17 18
22

52
48 29
37 35 39
34

1970-71 1980-81 1991-92 1995-96 1999-00 C urrent* World

Electrical Transport Building Packaging Machinery & Equipment Others

_______________________
Source: World - Barclays & Alcoa
India – Company Data

Electrical sector still the major aluminium consumer in India 25

Beyond an inflection point on GDP / capita,
lifetime value products like Aluminium grow rapidly
India GDP v/s Al cons. Per capita Al cons. growth

USDmn Kg per capita

4 Year
CY 03 CY 04 CY 05 CY 06
800 1.4 Growth
GDP per capita(LHS)
World 8% 9% 5% 7% 34%
700 Per capita Al cons (RHS) 1.2
China 20% 17% 18% 21% 101%
600
1 India 20% 14% 32% 6.7% 93.7%
500
0.8
400
0.6
300
2003-2006
2003-2006 CAGR
CAGR
0.4 China
200 China : 26 %%
: 26
India
India :: 24
24 %%
100 0.2

0 0
2002
2001

2003

2004

2005
1990

1995

2000

2006

India seems to have crossed this

26
inflection point
By 2030, Aluminium consumption growth will be
driven by China & India.
2005 2030
World demand-31.9 Mn tonnes World demand-73.7 Mn tonnes
6%
14%
China 5%
23%

22%
China 13%

35%
India

3% 4%

22% 5%
8%
5%
4% India
5% 8% 10%
8%

North America EU/EEA Japan CIS & Other Europe Latin America

SE Asia India China Others

Source: CRU June’07

Aluminium demand in India to grow more than 5 fold by 2030 27

India – Most viable option
Labour -
Country Energy Alumina Skilled & Market Country Risk
Low Cost
Qatar, Oman,
Iran
 
Saudi Arabia   
India     
China     
South Africa  
Algeria  
Cameroon  
Russia    
Brazil     
Venezuela   
Trinidad 
Australia  
Iceland  
Malaysia  
Guinea 
Ghana 
Suriname 
Vietnam   
Indonesia   
Jamaica    

28
Huge potential in key end user segments
Passenger Car Sales Power Capacity Addition
(‘000 nos) .7% pa 1 ,5 0 0 (Million MW)
11
67.7
1 ,0 7 6

509 26.6
16.7 19.2

2 0 0 1 -0 2 2 0 0 6 -0 7 2 0 0 9 -1 0 1992-97 1997-02 2002-07 2007-12

Two wheeler Sales Infrastructure Spending

(‘000 nos) 80 ($ bn)
pa FY01-05
5% 10900
11. 60 FY06-10
7858 40

20
4204

0
Power Road/Port/ Telecom
2001-02 2006-07 2009-10 Rail/Airport 29
Consumption Pattern require additional
downstream capabilities
Othe
2006

1 0%
Rolled
rs 5%

od 17%
eR
Wi r

Rolled Extrusions Wire Rod

Castings
34% 14% 42%
27%

Extrusions Castings
24% 27%

World Total Consumption 47.3 mt India Total Consumption 1.315 mt

Includes Recycled metal

58% of the World’s consumption is in Rolled Products/Extrusions

30
Downstream capability therefore necessary for a country to create/service demand
Market driving downstream opportunities

 Railway Wagons

 Two Wheeler

 Aerospace

 Cans

 Buses /Trucks/Cars/ 2-wheelers

 Premium / Branded Windows

Market Driving efforts being carried out by focused players 31

The Aluminium Industry’s role in India
The Aluminium Industry’s role in India

 India can logically position itself as a Primary Producer, Consumer and

Exporter of ALL FORMS OF ALUMINIUM. How ever

 Downstream, also will play a crucial role to grow markets & for
employment creation

The “Primary Producer” position alone would under-leverage

India’s natural advantages.

33
Job Creation Potential

2006 2015

Million Tons 1.1 5

Employment in Million

Upstream
0.18 0.8
(Primary and Semi Fabrication)

Downstream
2.2 10.0
(including end uses)

 Assumptions:
 Upstream – 20 employees per ton
 Includes direct + Indirect
 Downstream : Value addition & Labour cost considered

Aluminium, particularly downstream can be a major employment

generator. Chinese policy recognises this.

This Value & Job-creating industry needs continuing support from the
34
Government of India.
Aluminium Industry – A Major Contributor

 Possible Industry investments around Rs 1,000 bn (US$25bn) - starting

from last year & for the next 5 years

 Job creation potential – 10 Million people

A major contributor to the Indian Economy

35
A Significant World Player

At 5mn TPA the Indian aluminium industry will

be amongst the top three in the world

36
….. And can help transform India

Let us all work towards this transformation 37

Thank You