Globally the automobile/transportation industry has the largest share of over 35% of aluminium consumption. While the share of the automobile industry in domestic aluminium consumption has steadily increased from ~16% in FY2009 to ~25% in FY2018, the same is still lower than the global average. Moreover, the increase is largely a result of a higher number of automobiles produced, while average per unit aluminium consumption remains much lower than the global standards. As per ICRA.
While globally, ~160 kg and ~240 kg of aluminium is used per unit passenger and light commercial vehicles respectively, in India the average quantity of aluminium used per vehicle remains as low as ~29 kg/vehicle. A lack of segmental consumption data makes strict comparison with global standards difficult, but one can infer from the above statistics that per unit aluminium consumption is low in India. ICRA believes that vehicular weight reduction is a focus of the Indian automobile manufacturers to improve fuel efficiency. This in turn would entail a higher per unit usage of aluminium, going forward. Consequently, aluminium demand growth from the automobile industry is likely to outpace the overall aluminium demand growth in the country, in line with the past trend but driven by not only higher number of vehicles produced, but also an increase in per unit aluminium consumption.
The increased demand from the automobile industry can be met either through recycling of higher quantity of imported auto grade scrap or production of primary auto grade alloyed aluminium. As on date the alloying capacity of the domestic primary manufacturers remains limited because historically the primary manufactures had set up capacities focusing on the T&D sector, which do not require alloyed metal. Moreover, in our opinion, development and approval of products for the automobile industry is a time consuming process due to strict quality control norms. Hence, import of auto-grade aluminium scrap would remain high, at least in the near to medium term.
On the other hand, consumption growth of aluminium in the power T&D, packaging and construction sectors is likely to remain favourable, which would lead to increased quantity of primary aluminium being consumed by these industries. However, the pace of growth would be at a moderate level of ~7-8% as against the over 11% growth in aluminium consumption, anticipated from the automobile industry. Consequently, export of unalloyed primary grade aluminium from the country would also remain high till the time domestic primary alloying capacity is expanded in tandem with the increase in demand for such product, or till the time the demand from the non-auto sectors catch up, according to ICRA.