Why Indian Aluminium Firms Are Banking on Clusters

Why Indian Aluminium Firms Are Banking on Clusters

Leading Indian aluminium companies are turning to the cluster model to tap downstream investments and diversify aluminium applications in the country. Both state run entities National Aluminium Company (Nalco) and Vedanta Ltd, the Indian arm of London listed metals conglomerate Vedanta Resources Plc, are developing aluminium parks to offer a conducive ecosystem to players in the downstream space. To lure the downstream industries, both primary aluminium producers are offering a suite of incentives ranging from discounted molten aluminium supplies to concessional land plots at the parks.

Playing the Aluminium Growth Story

India’s aluminium growth story is robust. Between 2015 and 2016, the country’s total aluminium consumption expanded by 18.75 per cent, riding on increased offtake in the electrical, transportation and construction sectors. India’s current aluminium demand is 3.3 million tonnes each year but is projected to reach 5.3 million tonnes by 2021. Much of this demand has to be met by the flat rolled segment, arguably the fastest growing segment in terms of usage across industries. According to a study by Vedanta, by 2021, the transportation segment will contribute 55 per cent to the country’s total aluminium consumption, up from 21 per cent now.

The transition is expected to be led by the Indian government’s shift to electric vehicles by 2030 to reduce India’s carbon footprint and tap low carbon growth at a time when concerns about car emissions due to lax norms are mounting. The automotive sector has set its eyes on an ambitious target to sell 10 million electric powered cars by 2030. That figure represents almost 10 per cent of the global target for electric vehicles.

The key constraint to having that fleet of electric vehicles running on Indian roads in the future is the country’s lack of manufacturing prowess on lithium ion batteries. Currently, they are not manufactured in India and the automobile industry is 100 per cent dependent upon imports. However, some initiative has already taken off to make the country self sufficient in production of lithium ion batteries. The Indian government is planning a manufacturing facility with two government controlled entities- Bharat Heavy Electricals Ltd (BHEL) and Indian Space Research Organisation (ISRO) with an investment of Rs 100 crore ($15.6 million). Even Nalco is mulling a foray into lithium ion manufacturing space.

Aside from transportation, construction is tipped to contribute 30 per cent of India’s aluminium consumption by 2021, packaging will account for 10 per cent and consumer durables five per cent of the pie. The advantage with India is its low per capita consumption of 2.4 kilogrammes (kg) compared with a global average of 10 kg. Also, aluminium currently has barely 300 applications in India – compared with over 3000+ applications in developed countries.

How dedicated aluminium clusters could be game changers

Nalco, in collaboration with the Odisha government-owned Industrial Infrastructure Development Corporation (Idco), is developing an aluminium downstream park at Angul in the eastern region. The facility is spread over 240 acres and in the project, both Nalco and Idco are joint equity partners. The park is strategically located in the vicinity of Nalco’s aluminium smelting complex at Angul.  The park is modelled on Sohar Aluminium’s cluster in Oman where molten aluminium is supplied to the downstream units. This saves on logistical costs and also ensures continuous raw material supplies. In India, this is the first of its kind project, whereby molten aluminium would be sourced directly to feed the downstream units at the park. But, both Nalco and Idco- the equity holders in the aluminium park have gone beyond the commitment of raw material supply.

Nalco has committed a supply of at least 50,000 tonnes of molten aluminium every year to the downstream units who set up shop in the park. The supply can expand to 100,000 tonnes every year depending on the demand from the units. Nalco is also providing a pricing discount of Rs 5000 per tonne on aluminium ingots and Rs 4000 a tonne on molten metal. Leaving that aside, Nalco is lending its brand name to the products to be manufactured by the downstream industries. Land price for the units has also been slashed by 20 per cent. With such an array of incentives on offer, the downstream units can save up to Rs 10,000 per tonne. This cluster model has potentially positioned this cluster as amongst the most globally competitive aluminium parks in the world.

The Angul aluminium park is built with a cost of Rs 180 crore (or $28 million) on infrastructure. The aluminium park would reflect a complete industrial state-of-the-art entity, fully equipped with logistics infrastructure facility, an exclusive training centre, a park administration and a display & trade services facility. The park would also contain an Aluminium Product Evaluation Centre (APEC) furnished with a fully-fledged tool room, testing, simulation and evaluation facilities, processing hall and prototype development facility to foster innovation and deliver excellence in terms of quality.

Learning from the Nalco example, Vedanta has planned to develop a similar downstream aluminium park. The company has identified 240 acres of land around the site of its aluminium smelter at Jharsuguda in Odisha’s western belt. Expected to house more than 100 downstream units, the proposed aluminium park has the potential to attract investments worth Rs 1000 crore. This state-of-the-art plug-and-produce aluminium park will be set up across 240 acres of land, providing an exclusive ecosystem for industries dependent on as well as manufacturing aluminium conductors, extrusions, castings, foils, powder and paste. The aluminium park will facilitate easy transport of aluminium in liquid form, resulting in substantial cost savings that will be a game-changer for the downstream industries. With a holistic ecosystem in place, the park is expected to attract a large number of aluminium/aluminium based industries generating huge revenues and employment in the region.

Investor interest for Angul Aluminium Park

At the Angul aluminium park, Nalco has planned two joint ventures with US-based Almex and the Russian metal producer Rusal to produce high grade aluminium hitherto not manufactured in the country. Talks with both the companies are in advanced stages. Nalco will hold 40 per cent stake in each of the joint ventures. The joint ventures are aimed at manufacturing aluminium which finds applications in aerospace, metro rails, electric vehicles and automobile sectors. An Italian delegation which was on a recent visit to Odisha has also expressed interest to invest in the Angul aluminium park.

The park has already bagged one overseas investment from Bahrain-based Midal Cables. The company has proposed a rod and wire conductor unit at the park at an investment of Rs 358.90 crore with an annual capacity of 60,000 tonnes per annum. Grid Conductors Ltd, a subsidiary of Power Grid Corporation of India Ltd (PGCIL), has proposed to establish an aluminium and aluminium alloy conductor unit in Odisha, committing an investment of Rs 127.35 crore. There is a proposal by Gupta Power Infrastructure Ltd to set up a facility for HT (high tension) cables within the aluminium park at a cost of Rs 192.07 crore. The extent of these investments diversifies to other value added products catering to white goods, auto components, construction and other allied industries. Ancillary businesses are also expected to benefit from this project and their investors include providers of raw material of calcined petroleum, special refractory bricks, cryolite, caustic soda and aluminium fluoride.