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Global demand review

Introduction
The global meltdown severely impacted aluminium demand across the globe from the second half of 2008. Subsequently,
aluminium prices fell from the highs of $3,050 in mid-2008 to as low as $1,330 per tonne in February 2009. After bottoming-out
in the first of 2009, demand for aluminium picked up in the latter half on the back of recovery in aluminium-consuming sectors
such as construction, automobiles and consumer durables. Additionally, the stimulus packages announced by various
governments aided the overall recovery in demand. Prices too followed a similar improving trend and ended 2009 at an average
$1,675 per tonne. Given the backdrop of the changing global environment, we have not only reviewed the improvement in
demand and prices but have also provided a detailed analysis and outlook on the same.

We have analysed the domestic demand-supply situation and given an outlook on the profitability of Indian players. Further, we
have attempted to understand the aluminium extrusions industry, a downstream product.

The following section analyses global aluminium demand and prices and also provides an outlook on the same.

Global consumption estimated to have fallen by 5-6 per cent in 2009

Reeling under the impact of the slowdown, the global aluminium industry registered a negative growth for two consecutive
years. While the global consumption of aluminium fell by 1-2 per cent in 2008, the decline was much steeper at 5-6 per cent in
2009. Developed economies such as North America, Europe and Japan were the primary contributors to this decline.

The extent of the downfall in global consumption would have been steeper but for the impressive growth in Chinese
consumption. China's positive growth in aluminium consumption is attributed to the phenomenal growth rate in China's
automobile production and increased spending in urban construction. China accounted for more than 40 per cent of the global
demand, and is estimated to have grown by 9-10 per cent in 2009.

Region-wise demand review

Revival in demand from key end-user sectors since second half of 2009
After hitting rock bottom in early 2009, demand from end-user sectors in North America, Europe and Japan started recovering
from the second half of 2009. Stimulus packages announced by the respective governments in these regions also contributed
to overall revival in demand for aluminium.

The revival in end-user sectors across regions continued in January-April 2010 as well. Global production of aluminium grew by

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19.7 per cent (y-o-y) in the first four months of 2010, indicating revival in global demand.

Global production of aluminium (Q1 2009 - Q1 2010)

Source: International Alum inium Institute

During January-April 2010, production in China increased by over 50 per cent (y-o-y) as high-cost Chinese players re-started
their capacities following the rise in global prices of aluminium. While production in Europe was down by 4.5 per cent (y-o-y),
output in North America grew by 6.4 per cent in the said period. Other regions such as Asia (excluding China) and Latin America
witnessed double-digit growth rates.

China continues to be key growth driver

Over the last few years, aluminium consumption in China grew at a robust pace. In 2009, consumption of aluminium is
estimated to have increased by 9-10 per cent aided by government stimulus packages aimed at key end-user sectors.
Construction, automobiles and consumer durables sectors showed strong growth in 2009.

Investments in the construction sector continue to rise

The construction sector typically dominates aluminium consumption in China, followed by automobiles and power. As per data
from the National Bureau of Statistics (NBS), floor space sold in 2009 was 45 per cent more than in 2008. The strong growth in
floor space sales continued in January-April 2010, with a robust growth of 33 per cent (y-o-y). Additionally, investment in fixed
assets in 2009 rose by 47 per cent (y-o-y).

China: Investment in fixed assets - construction

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Source: National Bureau of Statistics China (NBS)

Automobile production continues to surge

The Chinese government provided subsidies for consumers to purchase new cars, spurring domestic production. According to
data from NBS, automobile production surged by 42 per cent in 2009 as compared with 2008. The monthly production run rate
was maintained in early 2010 as well, with production growing by over 65 per cent (y-o-y).

Automobile production, on a quarterly basis, improved consistently since the fourth quarter of 2008 as illustrated below:

China: Quarterly automobile production (Q4 2008 ' Q1 2010)

Source: NBS

Subsidies, similar to those given to the automobile industry, were provided to the consumer durables sector. Accordingly,
production of consumer durables grew by 32 per cent during January-April 2010 over the corresponding period of last year.

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North America: Slow turnaround in end-use sectors
North America, being the epicentre of the global meltdown, was one of the worst hit regions. Output of sectors such as
automobiles, construction and consumer durables nosedived in 2009 with a steep fall in demand. Accordingly, the demand for
aluminium is estimated to have declined by 20-22 per cent in 2009.

The major consuming sectors of aluminium in the US are automobiles (37 per cent of the total aluminium consumption),
packaging (23 per cent) and construction (14 per cent). While these sectors were severely impacted through the first half of
2009, they recovered slowly in the second half.

Improvement seen in automobile, packaging and residential construction

In 2009, automobile production in the US fell by around 32 per cent. However, when viewed on a sequential basis, quarterly
production rose steadily from the lows of early 2009. Automobile production in October-December 2009 increased by 70 per
cent as compared with January-March 2009 and was 25 per cent higher as compared with July-September 2009.

US: Quarterly automobile production (Q1 2009 ' Q1 2010)

Source: Wards Auto

As a proxy to the packaging sector, we have used the trend in revenues of retail and food services segments. Revenues of the
retail and food services segments fell by 6-7 per cent (y-o-y) in 2009.

As per the US census bureau, the number of starts in residential construction in 2009 slipped by about 38 per cent (y-o-y).
However, quarterly numbers viewed sequentially have shown a moderate rising trend. New residential construction starts in the
first quarter of 2010 moved up by 34 per cent y-o-y as compared with the first quarter of 2008.

Europe witnesses marginal recovery in demand towards the end of 2009

Just as in North America, consumption of aluminium plummeted in Europe by 15-17 per cent (y-o-y). The major consuming
sectors for Europe are automobiles (36 per cent of the total aluminium consumption) and construction (27 per cent).

Automobile production in Europe shows slow recovery

As per data from the European Automobile Manufacturers Association (ACEA), automobile production in Europe dropped by 17
per cent (y-o-y) in 2009. This fall was mainly attributable to the poor production performance in the first and second quarters of
2009. Output in the fourth quarter of 2009 (October-December) grew by over 33 per cent as compared with the first quarter of the
same year (January-March 2009) and by 15 per cent over the third quarter (July-September 2009), indicating a sequential
improvement in production.

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Automobile production in Europe region (Q1 2008 - Q4 2009)

Source: ACEA

Construction output yet to improve

As per Eurofer, recovery in the construction sector has remained sluggish. Construction output is estimated to have fallen by 6-8
per cent in 2009. The first quarter of 2010 also saw negative growth in the construction industry, which was impacted by heavy
snowfall and extreme weather conditions in the European region.

Modest demand recovery in Japan

The automobile industry dominates Japan's aluminium consumption and accounts for around 41 per cent of aluminium
demand. Coupled with the fall in automobile production, sectors such as construction, industrial equipments and fabricated
metals were also deeply in the negative. Overall, consumption of aluminium is estimated to have fallen by 20-22 per cent in
2009.

Japanese automobile industry has led recovery since September 2009

Deeply impacted by the global crisis, automobile production in Japan declined by as much as 31.4 per cent (y-o-y) in 2009.
Production has picked up from the low levels of early 2009. The average monthly production of automobiles in the second half of
2009 was 38-39 per cent higher than in the first half of 2009.

Japan: Automobile production trend (Jan 2009 ' Jan 2010)

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Source: JAMA

Similarly, sectors such as machinery and fabricated metals recovered at a slow pace. As per the monthly trend in Index of
Industrial Production (IIP) for these sectors, the recovery continued in the first three months of 2010 as well, albeit at a slow
pace.

Japan: Trend in IIPs (Jan 2009 ' Mar 2010)

Source: Ministry of Econom y, Trade and Industry, Japan

Global demand outlook

After two years of decline, growth in global demand set to turn positive

Global outlook summary

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We believe global demand for aluminium will grow by 5-6 per cent in 2010 and further by 7-8 per cent in 2011. Accordingly,
consumption will rise from 35.7 million tonnes in 2009 to 37-38 million tonnes in 2010 and reach 40-41 million tonnes in 2011.
China is expected to register double-digit growth in the said period, while US, Europe and Japan will grow at a modest pace.
We expect the impact of stimulus across regions to cool down in the second half of 2010 and hence, lower the rate of growth in
global demand.

China: Automobile and construction sectors remain growth drivers

Aluminium consumption in China is estimated to grow by 10-12 per cent over the next two years, primarily driven by the
automobile and construction sectors, which together account for about 55 per cent of the total aluminium demand in China.

Although there has been robust growth in sales of new floor space and investments in fixed assets, the construction industry
(29 per cent of Chinese consumption) in China is expected to grow at 10-12 per cent. Amidst the tightening of credit for
construction purposes in China, we believe that growth in the sector will be moderate throughout the year.

Automobile production increased by over 40 per cent in 2009 as the government provided subsidies to consumers buying new
vehicles. The effect of this has continued through the first quarter of 2010, with production surging by over 65 per cent (y-o-y). By
the end of the year 2010, we expect automobile production to grow by 18-20 per cent due to the effect of higher base (in the third
and fourth quarters of 2009) combined with the cooling off of stimulus packages.

North America: Modest demand growth expected

We expect the sequential improvement in demand to continue and US to register a growth of 2-3 per cent in 2010 and 4-5 per
cent in 2011.

Production in the automobile sector (37 per cent of total demand) improved on a sequential basis. With growing demand for
automobiles in 2010 as compared with 2009, we expect production to rise by 5-7 per cent. Consumer spending is also likely to
be higher in 2010 as compared with 2009 and demand from the packaging segment will grow at a modest rate of 3-5 per cent
in 2010.

Europe and Japan: Marginal demand growth anticipated with slow recovery in end-user segments
In the case of Europe, recovery in end-user sectors has remained slow. Automobile production is expected to grow marginally,
while demand from the construction segment is likely to remain flattish. Overall, we expect demand to remain flat in 2010 and
grow marginally at 3-4 per cent in 2011.

Automobile production in Japan is likely to recover from 2009 levels and grow by 7-8 per cent in 2010 and 9-10 per cent in 2011.
Although the automobile sector is the major contributor to the consumption of aluminium, demand from other sectors such as
construction, machinery and fabricated metal is expected to remain flat. Hence, demand for aluminium in Japan is likely to rise
by 2-4 per cent in 2010 and 4-5 per cent in 2011.

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