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Contributors – Zain Iqbal & Shuchi Nahar
Understanding The Aluminium Industry
Bauxite – Bauxite is the primary ore of aluminum. Almost all of the aluminum that has ever been produced has been extracted from bauxite. It is a mixture of hydrous aluminum oxides, aluminum hydroxides, clay minerals, and insoluble materials such as quartz, hematite and magnetite.
Alumina – Alumina is a porous, granular substance that is used as a substrate for catalysts and as an adsorbent for removing water from gases and liquids. Smelter-grade alumina accounts for 90 percent of all alumina produced; it is transported to aluminium plants, where it is electrolyzed into aluminium metal.
Bayer’s Process – The Bayer process is the principal industrial means of refining bauxite to produce alumina (aluminium oxide). Bauxite, the most important ore of aluminium, contains only 30–60% aluminium oxide the rest being a mixture of silica, various iron oxides, and titanium dioxide. The aluminium oxide must be purified before it can be refined to aluminium metal.
Hall Heroult Process – The Hall Heroult Process is the major industrial process for the production of aluminium. In the Hall Heroult Process, alumina is dissolved in a carbon-lined bath of molten cryolite. Aluminum flouride, is also present to reduce the melting point of the cryolite.
Process of How Aluminium is made – https://www.youtube.com/watch?v=fa6KEwWY9HU
Importance Of Aluminium
Aluminium offers a rare combination of valuable properties. It is three times lighter than Iron but is almost as strong as steel, extremely flexible and corrosion resistant due to thin surface layer of aluminium oxide. Aluminium has been continuously finding new applications due to rising price competence, superior weight to strength ratio, corrosion resistance, formability, dampness etc.
On the industrial side, aluminium is heavily used in electrical power transmission, machinery and equipment, and construction. Housing, in particular, makes heavy use of the lightweight material as a substitute for steel and wood in doors, windows and siding. On the consumer side, aluminium is used in a variety of retail products, including cans, packaging, air conditioners, furniture and vehicles.
Aluminium is the 3rd most available element present in the earth’s crust and the 2nd most used metal after steel. According to USGS India ranks 9 th in terms of bauxite reserves in the world.
Aluminium Production Process
The Aluminium production process can be divided into upstream and downstream activities. The upstream process involves mining and refining activities, while downstream process involves smelting and casting & fabricating. Aluminium downstream fabricated products include rods, sheets, extrusions and foils.
Globally, aluminium is produced by two different methods, the primary production process which involves the conversion of ores to aluminium and the other is secondary production (recycling) where the aluminium scrap is recycled to produce aluminium again. In India primary aluminium industry is dominated by 3 companies: Hindalco and Vedanta which are privately owned and NALCO which is a public sector undertaking having a Navratna status.
Aluminium production first begins with the mining of bauxite and ends with liquid aluminium getting converted into various products. The aluminium production process can be broken down into three stages; first bauxite, extracted from the ground. Second, bauxite is processed into alumina or aluminium oxide, and finally pure aluminium is produced. The aluminium process begins with the mining of bauxite. Bauxite consists of 45-60% aluminium oxide, along with various impurities such as sand, iron, and other metals. The process of Bauxite refining involves the use of Bayer Process and once the bauxite is converted to alumina, further on the process of reduction of alumina to aluminium is called Hall- Heroult process.
Bauxite, Alumina and Power constitute the major components of the total operating costs. Other raw materials used in the manufacturing process included are calcined petroleum coke, caustic soda, aluminium fluoride, fuel/oil and steam/ anthracite coal.
The average electricity consumption for the production of 1 tonne of aluminium is about 15,000 kwh, whereas for alumina the same is about 260 kwh per tonne. Since it takes 2 tonnes of alumina to manufacture 1 tonne of aluminium, of the 15,000 kwh, about 500kwh is consumed during the process of refining the bauxite to alumina, while the rest is consumed in the electrolysis process.
Hall- Heroult Process
Refined Alumina is then passed through the smelters to get transformed to Aluminium. Manufacturers of aluminium construct plants near cheap and abundant sources of power as power is one of the largest cost components in manufacturing, as production of aluminium requires electrolysis.
Power Cost – Biggest Variable In Profits
In India, the aluminium manufacturing companies have their own captive power plants which make the cost of production cheaper than using commercial power.
Power is amongst the largest cost component in manufacturing of aluminium, as the production involves electrolysis. Indian manufacturers are the lowest cost producers of the base metal due to access to captive power, cheap labour and proximity to abundant supply of raw material, i.e., bauxite.
Major Cost Heads In Aluminium Production
Global Bauxite Mine Production
India has 593 million tonnes of bauxite reserves and is naturally endowed with large deposits of gibbsitic bauxite. According to Indian Bureau of Mines there are reported 152 mines of which 134 operate in the private sector and 18 mines fall under the public sector. Odisha ranks 1st in mine production followed by Gujarat, Jharkhand and Maharashtra. The abundant reserves of bauxite have made India a net exporter of bauxite. Bauxite is primarily used for the production of alumina, other than that it is also used in refractories, abrasives, chemicals, aluminous cements, and miscellaneous products like proppants.
Production & Consumption Of Bauxite In India
Production of bauxite is growing at a healthy rate of 10.5% CAGR from FY 2012-13 to FY 2016-17. As India has bountiful bauxite reserves and mining potential, there is a constant rise in the production and mining of bauxite. On the other hand apparent consumption is growing at a CAGR of 18.4% from FY 2012-13 to FY 2016-17. Till FY 2015-16 India was consuming around 75%-80% of the bauxite produced while the rest of the commodity was being exported.
Now due to the rise in the demand of aluminium in the domestic markets there has been a sudden drop in the exports in FY 2016-17. India exports bauxites to China, Nepal, Saudi Arabia, France, Japan, Slovenia, USA, UK, Oman, Italy and Kuwait. China is the main importer of bauxite from India, almost to an extend of 90% of the total bauxite exports. Imports are quiet negligible in comparison to the exports but whatever little India imports its’ from Guinea and Brazil.
Once the bauxite passes through the Bayer process of manufacturing, the finished product is alumina. Alumina is processed in the refinery plants. Metallurgical alumina is used for the manufacturing of aluminium. Chemical alumina and hydrates are used in range of industries including water treatment, fillers in cables and plastics, refractories and ceramics, glass among others. Smelter-grade alumina accounts for 90% of all alumina produced; it is transported to aluminium plants, where it is electrolyzed into aluminium metal.
The surplus alumina is exported. Consumption of alumina on the other hand is growing at a growth rate of 11.6% CAGR FY 2012-13 onwards. There has been a 12.5% y-o-y increase in from FY 2015-16 to FY 2016-17 of alumina consumption. An increase in the consumption of alumina is reflected in the production of aluminium. India is a net exporter of alumina as most of the companies in the aluminium sector are backward integrated that is ‘Backward integration’ refers to the ownership of mines to fulfill its ore requirement.
Global Aluminium Production
The end product once alumina is passed through the Hall-Heroult process is aluminium. Primary aluminium which is initially in liquid form is casted into extrusion ingots, sheet ingots or foundry alloys, all depending on what it will be used for.
China continued to be the single largest producer of aluminium, contributing 54% of the total world production. China is also one to the major consumers of aluminium.
Global Aluminium Consumption
Global primary aluminium production increased by 5.8 percent in 2017. Continuing strong demand is also being reflected in price trends and had an enormous impact on the level of international aluminium stocks. Aluminium will continue to benefit from the trend towards lightweight construction in coming years.
Global primary aluminium production increased by 5.8 percent in 2017, with a 10 percent increase in China and stable production in North America and Europe. In total, approx. 63.2 million tonnes of aluminium were produced worldwide in 2017. Market observers are expecting continued solid growth in the current year, with forecasting global primary aluminium production of 64 million tonnes and recycled aluminium production of approx. 12 million tonnes in 2018. Strong demand is also reflected in pricing trends. Whereas the price was approx. 1,700 US dollars per tonne at the start of 2017, it had risen to 2,100 and 2,200 US dollars one year later.
India’s Aluminium Production Capacity
Indian players are constantly increasing their production capacities to cater primarily to the domestic markets and to export the surplus stock to countries deficient of aluminium. Cost of production plays an important role in differentiating companies within the industry. It is the most important primal point, which helps a company strategize to remain competitive with respect to its peers. Cost of production of an aluminium manufacturing company can vary significantly depending upon the availability of its own resources. The more the company is backward integrated, the lesser is the cost of production. Apart from the mining rights, the source of power is also important as it accounts for a significant portion of the aluminium production process.
Vedanta aluminium smelter is located at Odisha (Jharsuguda) and Chhattisgarh (BALCO).
Hindalco aluminium smelter is located in the state of Odisha (Aditya Aluminium & Hirakud), Madhya Pradesh (Mahan Aluminium) and Uttar Pradesh (Renukoot).
NALCO refinery is also located in Odisha (Angul). Most of the aluminium smelters are located near their respective alumina refineries. This saves on the cost of transportation and freight.
End Use Of Aluminium In The Indian Markets
On the industrial side, aluminium is mainly used in electrical power transmission, machinery & equipment and construction. For housing as aluminium is a lightweight material it is a good substitute for steel and wood in doors, windows and sliding. On the consumer side aluminium is used in a variety of retail products including cans, packaging, air conditioners, furnitures and vehicles.
Transport – Increased financing options, per capita income and lower penetration to drive the demand for automobiles. the hardening of environmental and pollution norms are forcing the Original Equipment manufacturers (OEMS or the automobile manufacturers) to substitute steel by aluminium which helps in reducing the weight of the vehicle. Reduction in weight helps the vehicle to improve upon its mileage thereby reducing the pollution levels emitted from the vehicle. As observed in the past, because of its incomparable properties, use of aluminium is consistently increasing in the production of automobiles.
Packaging & Can Stock – With growing consumption, greater demand for packaging materials has emerged especially for aluminium foil and cans in the organized retail segment in the emerging economies. There has been a shift in use of aluminium cans for the consumption of aerated drinks from the use of glass bottles, due to it being light-weight and easy to carry.
Consumer Durable’s – Aluminium is widely used in cooling systems like air conditioners, refrigerators and cooling towers. Rise in disposable income, increasing infrastructural activities and improving power norms are likely to drive the demand for these products. Machinery Equipment: Greater industrialization and investments to spur growth in the aluminium sector due industrial growth in emerging economies.
Power – Aluminium, being an excellent conductor of electricity and relatively cheaper priced, is widely replacing copper in its use of power transmission. Given the same weight of the metal aluminium is twice as good in electrical conductivity when compared with copper. Increased focus of the government in the infrastructure sector is likely to attract major investments in the power-generation and transmission sectors
Building & Construction – Aluminium is weather resistant and ensures optimum performance over a longer period of time. Since it is very malleable, it can take a number of forms allowing designers enough flexibility during its usage. This property further allows the metal to be used for a wider range of applications demanding varied surface finishes. Its high strength to weight ratio allows it to be used for windows and curtain wall frames. Aluminium is highly light-reflective and hence aluminium solar collectors can be installed to lower energy consumption for artificial lighting and heating in winters. Aluminium shading devices are also used to reduce the need of air conditioning during summer seasons. Aluminium is also a non-combustible material hence providing additional fire safety properties in its applications.
Aluminium consumption in India is poised to grow from 3.3 million tonne (mt) in 2015-16 to 5.3 mt in 2020-21 riding on a host of government initiatives like, Make in India, Smart Cities, Housing for all, rural electrification, and freight corridors. Primary demand for increased consumption is expected to come from the power sector, where aluminium is a cheaper and lightweight substitute for copper in transmission and distribution. Secondary demand for aluminium consumption will ride on the growth in the automotive sector.
There is a positive correlation between the prices of domestic and international aluminium and the same is driven by the economic situation in China, as it is the major producer and consumer of aluminium. During FY16, aluminium prices were the lowest around the world (USD 1494/tonne) and had declined by 16% y-o-y, due to oversupply of Chinese aluminium driven by overcapacity. However, there a pick up in Chinese demand backed by stimulus measures coupled with positive sentiments in the US post elections due to expected boost in infrastructure which resulted in a rally in FY16-17.
The sales realization and operating profit margins of the domestic aluminium players largely depends on the aluminium prices globally and in the domestic markets. Global commodity prices were extremely volatile during the FY 2014-15 due to the slowdown in the Chinese economy which in turn affected the domestic prices for aluminium which had a direct bearing on the sales growth and operating profit margins of the domestic aluminium players.
Higher price of metal in FY 2014-15 has led to a higher growth in sales and increased operating profit margins. In FY 2015-16, the aluminium industry witnessed significant challenges as the average realizations declined. The price of aluminium globally was 16% lower than the previous year. FY 2016-17 a recovery in the prices of aluminium has also reflected in an improved operating profit margin and sales growth.
Aluminium Price Over 20 years
Average Price per tonne over this 18 years $1900.
Production Of Recycled Aluminium
Secondary production of aluminium involves recycling of the aluminium. Aluminium does not lose any of its properties when it gets recycled. The added benefit when aluminium gets recycled is that it consumes only 5% of the energy needed to make the same amount of primary aluminium. In addition, recycling aluminium significantly reduces the negative environmental impact of ever-expanding landfills.
Compared with the production of primary aluminium, recycling of aluminium products needs as little as 5% of the energy and emits only 5% of the greenhouse gas. Recycling is a major aspect of continued aluminium use, as more than a third of all the aluminium currently produced globally originates from old, traded and new scrap. In 1990 total aluminium production was around 28 million tonnes (with over 8 million tonnes recycled from scrap) and today the total is close to 56 million tonnes (with close to 18 million tonnes recycled from scrap). By 2020 metal demand is projected to have increased to around 97 million tonnes (with around 31 million tonnes recycled from scrap). Today, around 50% of the scrap is old scrap (i.e. scrap from end-of-life products).
Global Share Of Primary And Recycled Metal Production and consumption of energy in primary and secondary metals.
Aluminium can be recycled over and over and over again without loss of properties. The high value of aluminium scrap is a key incentive and major economic impetus for recycling.
Aluminium scrap has considerable market value because most of the energy required for the production of primary aluminium is embodied in the metal itself and, consequently, in the scrap. Therefore, the energy needed to melt aluminium scrap is only a fraction of that required for primary aluminium production. Furthermore, if pre-treated and/or sorted, aluminium products can be recycled for use in almost all aluminium applications since the metal’s atomic structure is not altered during melting.
India is amongst the lowest cost producers of aluminium across the world, owing to easy availability of raw materials and comparatively lower labor costs. The growing demand for aluminium in the last decade, driven by India’s underlying growth story has resulted into expansion of smelting capacities of the major domestic players. With the addition of new aluminium capacities India aims at not only satisfying the domestic demand, but also play a major role in the global aluminium market.
Production is expected to grow to cater to the domestic demand rise due to various initiatives taken up by the government and the surplus stock will continue to be exported.
Production trend of Bauxite, Alumina and Aluminium (mn tonnes)
With the ramping up of the smelter capacities, India is likely to increase its aluminium production in line with increasing domestic demand. The industry is also likely to be in a position to export the surplus production, owing to its low cost advantage.
Consumption of Aluminium is picking up pace. Reforms proposed by the Government of India like the Make in India Campaign, Smart Cities, Rural Electrification and a focus on building renewable energy projects under the National Electricity Policy can drive up the consumption of the metal.
Consumption trend of Bauxite, Alumina and Aluminium (mn tonnes)
Challenges For Aluminium Sector
- Increasing Costs – The external environment is volatile. Market prices keep fluctuating. In such a scenario cost optimization techniques help you identify scope for reducing costs and bring about stability in operating profitability. LME, forex and raw material price volatility.
- High energy cost – Power cost makes up for 30-35% of total aluminium cost. Thus energy management is critical for players in this industry. It is necessary to identify and control areas to minimize your energy consumption to improve overall sustainability and competitiveness of your plant.
- Meeting government Compliance’s – The policy and regulatory framework on the Indian Aluminium Industry entails a number of statutory compliance requirements.
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