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We saw 6% degrowth in aluminium demand from 7% growth in Q1: Satish Pai, Hindalco

The Chinese aluminium demand this year so far has grown by only 1 pc whereas normally it grows 5-6 pc We have exported a lot of metal but we are feeling the impact of the slowdown in demand in India right now, says Satish Pai, MD, Hindalco. Excerpts from an interview with Mubina Kapasi of ETNOW.

How has the slowdown impacted Hindalco?

Our international businesses have done very well but the Indian businesses of course have felt the impact of the slowdown that we have seen in demand in the country.

As a result, in the second quarter we have seen that aluminium demand degrew 6% whereas in the first quarter it had grown by about 7%. That had quite an impact on our business.

As a result, we have exported a lot of metal but it is fair to say that we are feeling the effects of the slowdown in demand in the country right now.

Is it unusual to have such a sharp fluctuations?

Well it is unusual but you have to remember that the monsoon quarter is generally a slower quarter.

But this is year-on-year you are comparing?

This is year-on-year anyway but it is fair to say that the contraction may be a little bit more than what I would have expected. I would have at least thought we would see a 2-3% demand growth but if you look at construction and infrastructure and even the auto sector, everywhere, the demand has been quite weak.

So how much of the total deliveries are to the auto sector?

We are not very exposed to the auto sector. Our extrusions are heavily dependent but we sell about 328,000 tonnes a quarter. Less than 5% of that is to the auto sector.

For us, the electrical sector takes 40%; overall transportation sector, which is commercial vehicles etc. takes another 10-15%, packaging takes about 20%, In all those sectors, the demand has been slowing down.

I remember in our previous conversation, imports featured heavily as a key complaint for not just the aluminium, but the steel industry also. Is that still a problem?

It is still a problem see and on absolute level imports have gone down by 8% but as a percentage of the total consumption, they remain at 60% because the overall demand has come down in the country and as a percentage, imports are still taking 60% and scrap is still more than 50% of that import.

What do you make of this whole RCEP issue? As an Indian aluminium maker, I would assume you should be pretty pleased with the exclusion?

We have been working with the government trying to highlight the fact that RCEP will include China and if adequate safeguards are not in place, then besides the ASEAN countries, we will have a lot of imports coming in from China. We are extremely happy that the government has taken cognisance of our fears.

Overall, RCEP is an important trading body and I am sure that India will come under some pressure but I would urge that the government take into account the concerns of the Indian industry.

There was a shutdown at Muri. The issue was solved but it has still not resumed operations. Why is that?

We are going through the regulatory approval processes because we had to do certain amount of clean up. We had to resolve the technical issues of why the breach happened and that has what has taken time.

So we are hoping that in this quarter we will reopen Muri because as you said the issues are behind us. Until we restart the plants, I have quite a lot of fixed costs that is still hitting me.

But even if you restart it by end November as per plan, it is not that from day one you will reach the kind of capacity utilisation of capacity as you were doing earlier?

It will take at least a month.

So when you start off, how are you looking at it?

It would not have that much effect because we have been keeping the plant warm stacked. We have not absolutely cold stacked it. We should be able to start up, but you are absolutely right. It will take us at least a month to ramp it up.

Overall what are your volumes for copper and aluminium looking like in Q2? How much of it was impacted because of Muri?

The aluminium volumes were not impacted at all. We had sales of 328 KT at our full capacity. For copper, we were at about 82 KT. We could have been a bit higher but Dahej and that whole area of Bharuch had probably seen the most severe monsoon in the last 10 or 20 years.

Our operations were impacted for nearly five to six days because of the heavy rains. That us why the copper volumes were a bit lower than what they could have been.

Your aluminium volumes are still about okay. What about the cost of production (COP) of bauxite in Utkal Alumina?

So the COP for Q2 is same as Q1. I spite of it being a monsoon month when normally things get tight and as you know coal output has been quite tight in the country, our cost of production remained flat. In Q3, our guidance is flat to slightly down, once the monsoon is over.

We just have the coal block auctions going on. I do not think Hindalco has participated…

We participated in the Jamkhani for a little bit.

And…

We did not get it because the prices went quite high and we have quite a lot of linkage coal tied in. We had certain walk away lines and once they were crossed, we dropped out.

So what is it right now? It is minimal. How much is linkage?

60% of Q2 was linkage. About 15% to 18% we got on e-auctions but in Q2 for the first time we imported about 8% because the international prices of coal came down whereas the domestic spot prices went up.

Are you worried about the raw material availability in India?

You can say that I am a bit worried about coal availability in general, going forward. The Indian demand for power is going to continue to grow and I would worry that we have enough coal going forward. The steps the government is taking to auction more mines and to open up for commercial mining are the right steps.

Read also Electrically powered car trend raising aluminium demand -Novelis New cast aluminium plant to go on stream next FY: Wheels India
Talking about Novelis, it is heartening to see that the can sales are doing well, automotive fitting is doing well as well, despite whatever they say about the auto slowdown. How exactly are market forces playing out there because Novelis quarter after quarter, has not been that scary a scenario?

Well, I guess, it has been what we expected. Novelis supplies to can and auto makers. On the can side, we are benefitting from the anti-plastic movement. Shipments have grown 10% year-on-year, but in general, can demand worldwide is going up. People are interested in the recyclability of cans.

So, from a green and sustainability point of view, aluminium for packaging is going to be on the uptrend. That is a secular growth we are seeing in the can market which is good for Novelis.

On the auto side, I have repeatedly said that whereas the smaller cars, sedans are going out, the electric vehicle and the bigger SUVs are not going down. Hence the auto demand for us, especially in North America and Europe, has been quite strong. We did see a little bit of slowdown in China as it is a big electric vehicle market.

At least for aluminium in auto, we should not be seeing too much of a slowdown. In fact, we are predicting a 10% CAGR over the next five years.

Aleris too has done pretty well. Now there was that conditional approval granted from the European Commission on the sale of a certain asset. Where are we on that front?

The sale of the asset which is Duffle in Belgium is far advanced. Within November, hopefully we can sign a binding agreement with a party to do that sale and hence get to European Commission approval.

So you have a buyer already?

We have buyers that are looking at it.

But this is the only regulatory approval. You have got all the other approvals in place otherwise?

That is the only one for the European Commission. In the US, we have signed a consent decree and we are going through the litigation process there. We are quite confident that we are going to do okay there.

For the last many months, aluminium prices have stayed below $2000. How are you seeing the entire demand supply situation? How do you see aluminium prices? Do you see it move up anytime?

In the last couple of weeks, aluminium started to trend a little bit higher. Why did it start to go higher because there has been very encouraging noises coming out of the US-China dispute.

When you look at the fundamentals of supply demand, inventories of aluminium are at all-time lows. The supply-demand is quite tight but people are worried about the demand side. China is a big part of that demand.

The Chinese aluminium demand this year so far has grown by only 1% whereas normally it grows 5-6%. I think people are waiting to see if the Chinese economy picks up. The economy will pick up if they resolve the trade dispute with the US. A large part of it hinges on that trade disagreement being sorted out
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You have taken certain price hikes in some of your products?

Well as the price of aluminium has gone up, we have been hiking the prices in the last few weeks.

With respect to group holding, Hindalco has purchased a certain stake in Vodafone Idea. Is there any plan to infuse more money or sell off the stake?

Hindalco had 2.6% historically and it would be fair to say at this stage we have no further plans from the Hindalco side for investment.

You are going to stay at that 2.6% or dilution as a company?

Yes, we have no further plans at this stage.

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