The document analyzes Porter's Five Forces for the aluminium industry in India. It finds there is high rivalry in the industry due to a few large players controlling most of the market share. Substitutes exist for aluminium but demand is expected to grow in India. There are also high barriers to entry due to large economies of scale and capital required. Buyers have relatively high bargaining power while supplier bargaining power depends on integration level. The industry faces threats from global economic conditions but opportunities from growing domestic demand.

1. PORTERS FIVE FUNCTIONS-ALUMINIUM
By Aarushi Nargas

2. Supplier
Power
PORTERS
FIVE
FORCES
Degree of
Rivalry
Buyer Power
Barriers to
Threat of
substitutes
Entry

3. INDUSTRIAL RIVALRY
 As a new entrant into the market it is difficult to
compete with rivals as-
1. The top 5 Cos have covered a significant
portion of market share with top Producer
Hindalco itself covering 39%
2. Slow rate of growth
3. Economies of scale
4. High Investment in fixed assets

4.  Competition is primarily on quality and price, as
being a commodity, differentiation is difficult.
However, the recent spate of consolidation has
reduced the competitive pressure in the
industry. Further, increasing value addition to
aluminium products has helped some
companies protect themselves from the high
volatilities witnessed in this industry.

5. THREAT OF SUBSTITUTES
 Aluminium is comparatively more cheaper,
lighter and durable as compared to other
metals. Demand for aluminium is estimated to
grow at 6%-8%, per annum in view of the low
per capita income consumption in India. Also
the demand for the metal is expected to pick up
as the scenario improves for user industries,
like power, infrastructure and transportation.

6.  However, copper can replace aluminium in
electrical applications; magnesium, titanium
and steel can substitute for aluminium in
structural and ground transportation uses.
Composite wood and steel can substitute for
aluminium in construction. Glass, plastics,
papers and steel can substitute for aluminium in
packaging.

7. BARRIERS TO ENTRY
 There are high barriers to entry in this industry
as-
 Large economies of scale.
 High capital costs
 Extended time to set up
 Scarcity of Power
 Government factors
 Land problems
 Labour Law issues

8.  The most cost efficient level of production is
termed Minimum Efficient Scale (MES). This is
the point at which unit costs for production are
at minimum - i.e., the most cost efficient level of
production. If MES for firms in an industry is
known, then we can determine the amount of
market share necessary for low cost entry or
cost parity with rivals. The greater the
difference between industry MES and entry unit
costs, the greater the barrier to entry. As the
difference is towards the higher side in the
aluminium Industry it can be said that there are
high barriers to entry.

9. BARGAINING POWER OF CONSUMER
 Being a commodity, customers enjoy relatively
high bargaining power as prices are determined
on demand and supply. This is aided by the
long gestation period and the high storage
costs that incur which makes companies want
to push out their product into the market.

10. BARGAINING POWER OF SUPPLIER
Suppliers are Powerful if:
 Credible forward integration threat by suppliers
 Significant cost to switch suppliers
Suppliers are Weak if:
 Many competitive suppliers
 Credible backward integration threat by purchasers
 Concentrated purchasers

11.  The bargaining power of suppliers is low for fully
integrated aluminium smelters (upstream) as they have
their own mines for key raw material like bauxite.
Examples here could be Nalco and Hindalco. However,
those who are non-integrated or semi integrated,
(downstream) have to depend upon the upstream
producers for alumina or primary metal. While the
bargaining power is limited in case of power purchase as
it is highly regulated sector and government is the sole
supplier most of the times, increasing usage of captive
power plants are helping the companies to rationalize
their costs to certain extent.

12. SWOT ANALYSIS
Strengths:
• Abundant resources of aluminium ore
• Low cost and efficient labour force
• Strong Managerial capability
• Strongly globalised industry and emerging global
competitiveness
• Modern new plants & modernized old plants.
Weaknesses
• High cost of energy
• Higher duties and taxes
• Labour laws
• Dependence on imports for aluminium
manufacturing equipments & technology.

13. Opportunity
• Rapid Urbanization
• Increasing demand for consumer durables
• Untapped rural demand
• Increasing interest of foreign aluminium producers
in India
• Globalization
Threats
• Market fluctuations and China’s export
possibilities
• Global economic slowdown
• Governance issues.
• Environmental concerns.

14. CONCLUSION
 Indian aluminium producers have emerged
among the lowest cost aluminium producer in
the world. Aluminium Industry in India
registered a phenomenal growth during the past
few years on the back of robust growth in the
economy. With the growing demand of
aluminium in India, the Indian aluminium
industry is also growing at an enviable pace.

15.  In the past, the growth of alumina and
aluminium industries was in the range of 2 to
3% per annum. However, the growth rate may
remain minimal in developed countries. But its
growth is bound to be reasonably high in
developing economies such as BRIC countries
(Brazil, Russia, India and China) and Middle
East.