The rapidly growing electrical and automotive sectors may drive India’s aluminium consumption at a compounded annual growth rate (CAGR) of 9.5 per cent over the next four years.

Rating agency Credit Analysis & Research (CARE) forecasts the country’s aluminium consumption will rise from 1.4 million tonnes by 2009-10 to 2.05 million tonnes by 2013-14. Between 2002-10, the white metal consumption rose at a CAGR of 12 per cent from 0.5 million tonnes to 1.4 million tonnes.

The growth will be possible as the global aluminium industry is recovering from the lows of 2009 when the surplus was hovering around 739,000 tonnes due to the cascading impact of the economic slowdown on consumer industries.

Data compiled by the UK-based World Bureau of Metal Statistics indicate global surplus of aluminium plunged to 295,000 tonnes between January-April 2010, from a staggering 905,000 tonnes in the corresponding period of the previous year.

This means aluminium consumption is rising, says Praveen Singh, senior commodity analyst with broking firm Sharekhan.

Electrical, automotive and construction sectors are the key end-users, accounting for nearly 68 per cent of India’s aluminium production. The electrical sector contributes the highest with 36 per cent, while the automotive and construction sectors share 22 per cent and 10 per cent, respectively, an ICRA report said.

The usage pattern for aluminium in these sectors is different in the domestic market when compared to the rest of the world. While globally, automotive and the construction sectors are major drivers, in India the major bulk of demand is accounted by the power transmission sector, followed by the automobile industry.

Aluminium consumption from the automobile and the construction industry is expected to grow by 10 per cent each. Most importantly, replacement of steel and copper by aluminium in the automobile and power transmission sectors, respectively, is likely to support the aluminium demand.

With the expectations of the economy growing at around 8 per cent, demand for the metal from the power transmission segment is also likely to remain healthy at around 7 per cent during the same period.

Being a good conductor of electricity, aluminium has been gradually replacing copper in the power transmission sector. Given the same weight of the metal aluminium is twice as good in electrical conductivity when compared to copper.

Prices of copper hover in the range of $6,500-7,500 per tonne, while that of aluminium is $1,500-2,500 per tonne.

Increased focus of the government in the infrastructure sector is likely to attract major investments in the power-generation and transmission sectors. The increase in the set up of new power transmission lines is likely to grow at a CAGR of about 7 per cent during the next five years, the CARE report said.

The government plans to increase power generation substation capacity of 220 kg to 166,999 Nos by the end of 12th Plan period between 2012-17 from 126,999 Nos in the 11th Plan period between 2007-12. Similarly, number of 400 Kv substations will rise from 94,550 to 144,550 between the 11th and 12th Plan period. This will drive aluminium consumption in India, Singh said.

Domestic commercial vehicle sales is expected to increase at CAGR of 9 per cent while passenger vehicle and two-wheeler sales are expected to rise by 13.5 per cent and 7.9 per cent, respectively, between 2010 - 2015. The overall demand for the automobile sector is likely to increase at a robust 10 per cent in the next five years.

Apart from the increase in demand, the hardening of environmental and pollution norms are forcing the original equipment manufacturers (OEMs) to substitute steel by aluminium which helps in reducing the weight of a vehicle.

(ref: http://www.worldal.com/news/india/2010-07-22/127975896329581.shtml)

New Delhi: In an attempt to bridge a funding shortfall and help banks avoid asset-liability mismatches, the government plans to create a Rs50,000 crore debt fund that will raise low-cost and long-term resources for re-financing power projects.

“The fund is in the process of being formulated. Takeout financing is what we are looking at,” said Union power secretary P. Umashankar.

Takeout financing is a system designed to help banks lend to long-duration projects. In takeout financing, a long-term financing institution such as India Infrastructure Finance Co. Ltd (IIFCL) agrees to take an existing loan off the books of a bank for a price. This would help banks in asset-liability management in financing long-term projects when their resources are short- or medium-term in nature.

“Any power sector project that has crossed the stage of uncertainty such as construction will benefit from this. The fund will also create room for the banks to lend,” said Umashankar.

The funding ability of Indian institutions is restricted by central bank limits on how much they can lend to each sector or business group. As a result, the country’s target of adding 160,000MW of capacity in the 11th Plan (2007-12) and 12th Plan (2012-17), requiring a total investment of Rs18 trillion, hinges on the ability to mobilize debt.

According to a concept paper for the fund reviewed by Mint, it will be set up by one or more sponsors acting as general partners. It will be managed by an asset management company, and may refinance up to 90% of outstanding project debt and will earn around 100 basis points over what it pays to investors. One basis point is one-hundredth of a percentage point.

“The plans for the funds are in the preparatory stages,” confirmed a senior government official aware of the development, who did not want to be identified.

The preparatory meetings for the fund will be held under the chairmanship of Deepak Parekh, chairman of Housing Development Finance Corp. Ltd. Officials of the Planning Commission, the Union power ministry, state-owned power sector lending institutions such as Power Finance Corp. Ltd (PFC), Rural Electrification Corp. Ltd (REC), and the Central Electricity Authority, India’s apex power sector planning body, will participate in the meetings.

 India has been for long contemplating setting up such infrastructure funds.Bloomberg had reported on 14 May about plans for an $11 billion (Rs51,590 crore today) debt fund to build ports, roads and bridges, citing Montek Singh Ahluwalia, deputy chairman of the Planning Commission.

The paper says the sponsors of the power sector fund may be a combination of organizations such as PFC, REC, Life Insurance Corp. of India, State Bank of India, Infrastructure Development Finance Co. Ltd and IIFCL, among others.

It may also include investment banks and non-banking financial companies along with multilateral funding agencies such as the International Finance Corporation and the Asian Development Bank to attract foreign investors.

utpal.b@livemint.com