India Metals Report Q2 2012

Indian metals production will hit headwinds in 2012 as market growth moderates in the face of a slowdown in the automotive industry while producers struggle to secure raw material and energy supplies for their operations, according to BMI's latest India Metals Report. Indian crude steel output grew 5.6% to 72mn tonnes (mnt) in 2011 with declining activity in the automotive market coupled with disruptions to raw material supplies undermining growth. Meanwhile, BMI estimated consumption growth falling to 6.6% (68.7mnt) in 2011. Finished steel consumption is projected at just under 100mnt in 2016. Factors depressing demand growth include the effects of higher interest rates on the automotive and construction sectors, the country's top steel using industries.
Aluminium consumption was estimated at 1.5mnt in 2011 and we expect it to reach 1.9mnt in 2016 due to growth in domestic manufacturing. A decline in activity in the automotive market coupled with raw materials supply problems and continued delays in capacity expansion will limit growth to 2.7% in 2012. Vedanta's expansion project, which is raising its smelting capacity from 1.6mn tonnes per annum (mtpa) to 2.5mtpa, along with a recovery in the aluminium market and hope that constraints to growth will be alleviated, should support 35% growth in primary aluminium output to 1.9mnt in 2016 with production set to exceed 3mnt by 2016. In addition, we have raised our forecast for net exports from 132,000 tonnes to 261,000 tonnes in 2011. Lower levels of domestic consumption than previously forecast should ensure that India maintains a trade surplus in aluminium over the medium term and does not descend into deficit.
Indian refined lead output grew 5% to 175,350 tonnes in 2011 as Vedanta subsidiary Hindustan Zinc Ltd's (HZL) new 100,000 tonnes per annum (tpa) Dariba complex, commissioned in Q311, bolstered output. However, recyclers will retain a significant share of production. By 2012, Indian lead smelting will have reached the limit of capacity while consumption will continue to rise, forcing the market to depend on imports, which should reach 75,000 tonnes by 2016.
Indian refined zinc output grew 11% to an estimated 778,000 tonnes in 2011, leading to an exportable surplus of around 85,000 tonnes. Domestic demand rose 8.6% to 616,000 tonnes in 2011 and is set to reach 896,000 tonnes by 2016, an increase of over 45% over the period. Production growth strengthened in 2011 after industry leader HZL brings its Rajpura Dariba smelter up to full capacity. India will remain balanced between supply and demand with modest net exports over the next five years. Beyond 2011, the mediumoutlook for consumption is broadly positive.
Copper refinery output rebounded in 2011 with growth of 7.7% to 697,600 tonnes largely correcting the downturn in 2010. A positive long-term outlook means that Indian copper prices are likely to remain well supported. Indeed, the sustained growth of the Indian market will help support international copper prices. The expansion of Sterlite's capacity should push output up. This should make India a significant exporter of refined copper, with exports rising to 367,000 tonnes in 2016.