ALUMINIUM - JINDAL ALUMINIUM

The government needs to support strategizing a National Aluminium Policy (NAP) focused on holistic short, medium - and long-term visions for the sector.

Pragun Khaitan - Vice-Chairman and Managing Director, Jindal Aluminium Limited

Brief us on the current market trends for the Indian Aluminium Sector and the demand-supply scenario from different verticals for flat-rolled and extruded products?

The Indian metal market growth has seen global, macroeconomic and industrial dynamics, such as rise in the industry consolidation, trade war, temporary plant closures, and restricted imports-exports due to the ongoing pandemic. Regardless of the scenario, the chief objective of the industry continues to be the optimization of cost, raw material sustainability, and process efficiency. The flagship programs like Make in India, Atmanirbhar Bharat Abhiyaan (Self-Reliant India), National Capital Goods Policy, Development of 100 Smart Cities and Power for All, initiated by the government are all set to augment metal consumption.

Aluminium is a lightweight, corrosion-resistant, good conductor of heat and electricity, non-magnetic and non-sparking metal. It allows a saving of up to 50% over competing materials in many applications. Due to its many other mechanical, chemical and physical properties aluminium plays a pivotal role in the automotive, construction, transmission and distribution, aerospace, defense and other sectors writing the growth story of India.

Application of Aluminium extruded and flat-rolled products in healthcare, real estate, automobile, packaging and others; profiles aluminium as one of the most versatile, adaptable, and sustainable metals in its category. For the building and construction sector, applications like Mivan shuttering used in residential and commercial projects, aluminium formworks in glass faces and facades of the high-rises, entertainment zones, cricket stadiums, and swimming pools make it a metal of choice. It has a vast potential in the bullet and hyperloop train, weaponry systems, and also in space mechanisms. With its unique properties to support sustainable human development in different forms, the application of Aluminium is only going to increase and thus the demand.  

What are the key continuing challenges which you foresee impacting the economy as a whole, and specifically for the Aluminium Sector post easing out of lockdown in stages? 

Amid the ongoing slowdown, the pandemic has pushed the global economy towards an undesirable decline in growth. Experts have estimated its contraction by about 3% in this year. This decline will also impact the overall metal industry, including aluminium. It calls for government support strategizing a National Aluminium Policy (NAP) focused on holistic short, medium- and long-term visions for the sector. The policy must earmark growth targets for the industry, especially the downstream aluminium. Due to the mounting production cost, the domestic downstream aluminium industry has been struggling to remain globally competitive. Hence there is a need for policy support that will favorably increase the export of value-added products as compared to raw aluminium, also influencing the dollar outflow and GDP.

Meeting the growth drivers like considering aluminium as one of the core sectors, need for metal recycling and energy policy, execution of an export policy for downstream aluminium sector and implementation of trade policy and revisiting all the free trade agreements finalized years back will help in accelerating the industry position. As far as the expected CAGR is concerned, India's aluminium consumption has grown at a CAGR of 10%, in the last five years. Further, it is estimated to grow over 7.5 % CAGR in the next decade.

What further measures should be undertaken by the state/central government and in which areas to facilitate healthy growth of the economy and the triggering demand for aluminium products?

As our country makes every effort to meet its targets of financial growth, aluminium will be pivotal in meeting its infrastructural needs. Therefore, it is necessary to identify the blockages that suppress capacity addition in the wake of contraction in demand due to Covid-19.

Firstly, the downstream aluminium producers must be encouraged towards high-end production and value-added exports. It will echo the, 'Make in India' and 'Atmanirbhar Bharat' objective with an emphasis on the progress of the overall value chain of the domestic aluminium sector. Measures like the government making considerations for categorizing the downstream as one of the core industries is essential to accelerate the growing consumption curve. It will not only safeguard local producers while foraying into export markets but will also support job creation. Reforms like hiking the customs duty on downstream aluminium products to 20% to provide a level playing field to domestic downstream manufacturers will enable the aluminium industry to strengthen the 'Make in India', initiative, also making the country self-reliant (Atmanirbhar).

Primary producers are exporting almost 50% of their production at LME price, yet they want higher prices for selling in the domestic market.  They already have the protection of about 15% over LME price in the form of 8.25% import duty, premium, and 4 - 5% they add towards forwarding and clearing charges.   Hence, the existing protection of around 15% is making aluminium expensive and adversely affecting the aluminium industry. The government must withdraw this protection of 15% and make the Indian aluminium downstream industry thrive. 

The present import duty of 2.5% on recyclable aluminium is all right and should be continued and not increased. Otherwise, it will force many small industries involved in the circular economy to close down and increase unemployment.

For the downstream sector to flourish, recycling aluminium must prioritize, and having a metal recycling policy will be a crucial step in this regard.

What is the bearing on the working capital with rising inventories and higher input costs? And what do you expect from the government to safeguard the Indian Aluminium industry, taking into account the cheap import from elsewhere?

Working capital is a significant part backing day-to-day operations of any company.. However, fiscal prudence demands that working capital is just enough for smooth operations and should never be in excess to put unnecessary strain on a company's profitability. It is vital to study both the working capital and the cash flow of a company to regulate whether the fiscal activity is a short-term or long-term event. Changes in the working capital affect the company's cash flow. The increased financial uncertainty tends to yield higher trade credits, payables, and working capital, thus requiring companies to tie more discipline in the control of their operations. The present situation demands more control on outstanding inventories as the working capital cycle starts elongating and can go out of control.

Downstream aluminium products like extrusions, sheets, foils are dumped from the nearby countries taking advantage of FTA and also due to the incentives given for exports by these countries. Take an example of China - the largest primary and downstream aluminium producer. It has an export duty on primary aluminium and a subsidy on downstream aluminium exports. The downstream aluminium sector faces stiff competition due to the low margin, the mushroom growth of extrusion manufacturing units in the unorganized sector (due to the low entry barrier) and dumping of aluminium downstream products from nearby countries. To tackle this, the import duty on downstream aluminium products should be increased to 20%.

How have you been able to realign the business creating value through different strategies during this pandemic?

The pandemic has intensified the competition in the extrusion industry as manufacturers after lockdown are eager to supply at the low margin or throw away prices which are not healthy for the industry. However, this situation prevailed for a short period only and gradually normalcy has restored.  We also experienced the impact of the global crisis due to condensed demand. However, the early weeks of July brought about a revival with a rise of 65 to 70 per cent on an average. As far as exports are concerned, we did not experience any rise or drop with 15 to 20 per cent of the total output being dispersed as per demand, keeping it constant. Despite the low demand, the company's performance has been stable throughout the two quarters of the year.

As a downstream aluminium manufacturer, it is very vital to be able to produce as much as we sell. In the downstream sector, we do not sell pure-plate commodities; instead, we manufacture the engineered products on specific orders only and hence cannot restock. In the month of April and May, we were able to adapt to the on-going demand, gradually ramping up our production to meet the rising demand.

What is your outlook for the next couple of years and what are the expected challenges, and how geared up is your company?

Jindal Aluminium currently occupies approximately 25 to 30% of the market in the extrusion's category and 10 to 12% in the rolling divisions' segment. We believe in organic growth supported by blending skills and technology. The objective over the next two years is to enable a higher output from our workforce by optimally using technology to boost their productivity. Thus, boosting the overall output from our plants and fully sweating the existing assets with very little CAPEX.

In FY20-21, we plan to produce and sell at expand organically by selling the same level we did in the last year. Spanning across the overall spectrum of the aluminium downstream industry, we will be increasing our focus to meet the wide-scale demand of the burgeoning defense and the aerospace in India.

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