Drivers for the industry
Dominant downstream presence
The integrated producers with a presence in value added products are in a better position to capitalize on this value addition as compared to stand-alone producers. The standalone downstream producers depend on the primary players for their requirement of primary metal and have to pay the market dictated price. However, primary players are producing the base metal themselves at a low cost. Since the primary players have gradually increased the use of aluminium for their captive consumption, the secondary standalone players have been forced to import the metal from the international market at a higher price. High entry barrier
* Initial capital cost to set up an aluminium plant is very high. * It is a consolidated industry with few large players. But the key to success still lies on the proper product mix that can yield better price realization per tonne of aluminium sold even in adverse market and operating conditions. Low Cost of production
* Integrated operations, continuous power availability through captive power plant, ability to get the quality raw material at a comparatively cheaper rate due to access to good quality mines in the proximity. Raw Materials
India is endowed with cheap and good quality of bauxite reserves. The total bauxite reserves in India are estimated to be around 3000 million tonnes. Power
Its contribution in the total operating cost is around 30 per cent. The two major energy-consuming steps in the production of aluminum are conversion of bauxite to alumina (Bayer’s process) and production of aluminum from alumina through smelting (Hall-Herault process).
Hindalco’s main competitors include:
* NALCO (National Aluminium Company Limited)
* Sterlite Industries Limited (Balco and Malco)
Incorporated in 1981, as a public sector enterprise of the Government of India National Aluminium Company Limited (Nalco) is Asia's largest integrated aluminium complex, encompassing bauxite mining, alumina refining, aluminium smelting and casting, power generation, rail and port operations. Commissioned during 1985-87, Nalco has emerged to be a star performer in production, export of alumina and aluminium, and more significantly, in propelling a self-sustained growth. At present, Gujarat Government is likely to take a call in the next two months on whether state promoted Gujarat, Minerals Development Corporation Ltd (GMDC) should form a JV with NALCO or sign a long term non plant grade bauxite supply agreement with the Navratna behemoth for the proposed manufacturing facility in Kutch district. Sterlite Industries:
The aluminium business of Sterlite Industries Limited comprises of two Indian aluminium giants – BALCO and MALCO. While BALCO is a partially integrated, MALCO is a fully integrated producer of aluminium. Sterlite has got a market share of around 32%. A Vedanta Group Sterlite industry holds 51% stakes in Balco. An Empowered Group of Ministers has decided to maintain Status quo with regard to Government’s remaining 49% stake in aluminium maker Balco.
Competitive Strengths of Hindalco
Strengths in Aluminum Business
* Globally competitive cost structure
* Fully integrated operations-They have cost effective access to quality bauxite, low cost power from their power plants, which meet a large part of their power requirements and which are located on the pithead of coal mines, significant control over supplies of other key raw materials such as caustic soda and aluminum fluoride from subsidiaries and a comprehensive range of value-added products with proximity to end-use markets. * Cost effective access to abundant supply of quality raw materials * Location advantage - Eg - their existing refineries are located close to their bauxite reserves - their facilities close to coal deposits giving us access to low cost power. helped them in generating uninterrupted power at a competitive...
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