Solid long-term demand fundamentals and expectation of healthy operating margins — despite some moderation this fiscal — will spur domestic aluminium makers to spend ~Rs 70,000 crore in the next five fiscals through 2027 to expand capacity. This capital expenditure (capex) would be thrice what was incurred in the past five fiscals. A Crisil Ratings study of three domestic primary aluminium producers, which account for the entire capacity of 4.1 million tonne (mt) in the country, indicates.
Long-term aluminium demand fundamentals are strong in both global and domestic markets, driven by increased spending on infrastructure, electrification, and transition to electric vehicles amid growing concern over emissions that is likely to keep global capacity addition in check. Worldwide demand may remain flattish in calendar 2023 amid recession fears. We expect the medium-term compound annual growth rate to be ~2%.
The domestic market is likely to witness more robust growth of 6-7% in the near term, and 4-5% over the medium term. Increasing green transitions in the economy would lend traction to this demand.
Given the prospects, domestic aluminum makers are cranking up capex. Around half of what’s planned may be for smelter capacity addition and the rest to increase downstream capacities and backward integration such as expansion of alumina refinery (by ~5 MT per annum) and commissioning of captive coal mines.
