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Aluminium foil on roll

Aluminium foil consumption in the Indian states like Maharashtra, Karnataka and Kerala has grown up dramatically by about 50 per cent in anticipation of the proposed ban on use of plastics in these three states. The thin gauge plastic bags (polyethylene bags) upto 8 microns are proposed to be banned in the aftermath of the deadly flood in the economic capital of the country which caused the life and business to almost standstill for about 36 hours in Mumbai thus causing a loss of about Rs 4-billion to the Indian economy. Foils since then have acquired prominent place in kitchen thus witnessing a growing of about 40 per cent as compared to 20 per cent before the flood. Dominated by the likes of Hindalco, the kitchen foil industry is estimated to be in the region of about Rs 320 million and is categorized as being in the nascent stage. The market is doubling every year with the change

in product and consumer patterns. History has it that aluminium foil use in the kitchen was confined to the upper class people till recently but the product is now more far-reaching. Aluminium foil forms only 0.5 per cent of total aluminium available. Still, it occupies prominent place in the flexible packaging industry mainly due to its virtues. Industry wants the material to come back after use for recycling even if the process is commercially unviable.

Industry Duopolised Industr y Indian aluminium foil industry has duopolised since Hindalco acquired Indian Aluminium (Indal) and India Foils came under Sterlite Management. Hindalco/Indal and Sterlite/India Foils have controlled the aluminium foils market entirely be it production, marketing or exports front. The duo has been producing a substantial part of the total consumption of aluminium foil in the country. The two Aditya Birla Group companies jointly produce in excess of 25,000 tonnes of aluminium foils while Sterlite and India Foils manage to produce around 12,000 tonnes per annum. The leader of early nineties, India Foils have cut down its production after closing down one of its foilstocks producing units in Kolkata. The management of Sterlite decided to procure foilstocks from its group company Bharat Aluminium Company till aluminium foil market is not

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maturing. Secondly, despite having huge demand of aluminum foil, the Sterlite management decided not to revive its foilstocks unit and asked the company to strengthen its financial position on its own. The message seems to be clear that Anil Agarwal is not in the mood to infuse funds in such a perspective entity. Therefore, with the aforementioned plant closure, the total capacity of the company came down to 12,000 tonnes from 20,000 in the beginning of 21 centuries. India Foils have introduced foils upto as thin as 6 microns which it claims as the thinnest in India. Hindalcos foil unit is located at Silvassa, Dadra and Nagar Haveli, has an installed capacity of 5000 tpy with foil thickness varying from 7 microns to 200 microns and an average thickness of 45 microns. Indal has a 6000 tonnes foil production capacity at Kalve in Maharashtra. In the last few years, the company has multiplied production several times looking at market demand and several tax benefits, the company has been availing from the regional government due to setting up plants in rural area. In 1999-2000, the production jumped to 7000 tonnes while the same mounted to 16,700 tonnes in 200102. The foil production of the company swelled to around 20,000 tonnes in 2002-03. Hindalcos aluminium foil production during 2003-04 shot up to 18,560 tonnes and 26,177 in 200405. Metalworld January 2006

From the table it can be seen that the kitchen foil production has been turbulent by Hindalco.

Sterlite, another major aluminum foil producer, has been very keen on foil producing. The group was, sometimes in the past, owning a cable wrap foil project with a capacity of 4000 tonnes but due to high rise in raw materials cost and difficulty in obtaining them pushed the plant into doldrums. Consequently, the plant is Period Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Foil production in metric tonnes 4664 4833 6523 7302 5331 6482 6084 7809

price due to having downstream processing unit in house, the possibility is that the group may rethink for aluminium foil production at the idled plant or enhance the existing capacity of India Foils looking at the huge potential lies in the business. There is a huge possibility that the company may opt for obtaining raw materials from its own plant rather than to buy from Bharat Aluminium Company. Supply-demand chain Foils is a very thin sheet of rolled aluminium supplied in its pure form (commercial purity) or in a variety of alloys and tempers which give a wide choice of tensile properties. The thickness of foil ranges from the thinnest currently produced commercially at about 0.0065 mm (6.5 micron) to the defined upper limit of 0.2 mm (200 micron). Material thicker than 0.2 mm is defined as sheet or strip. According to Indal, the total estimated capacity of the industry is 68,000 tonnes including cable wrap while the same is 61,000 tonnes excluding cable wrap. But, consumption has always been lower than the production causing surplus in the industry. The total consumption of aluminium foils is around 56,000 tonnes including cable wrap and 23,000 tonnes excluding cable wrap. 7

idled now. On the other hand, since the group has recently taken over Bharat Aluminium Company which may help supply raw material at affordable

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The industry exported about 40005000 tonnes of aluminium foils in 2002-03 which was shot up to 6000 in 2003-04 and about 6500 tonnes in 2004-05. Physical demand remained constant till 1990 because of several obstacles in the form of taxes and lack of awareness about its chemical properties. But, since globalization the demand has multiplied several times following improvement in standard of living among middle class. Application of aluminium foils mainly for hygenic purpose was previously confined to wealthier persons for their daily and casual purpose which is now spread among middle class as well. Threat from competitors Aluminium foil is principally used as a high performance barrier in the packaging of foods, pharmaceuticals and toiletries, and also in decorative applications in bottle labelling and in confectionery packaging. Its end-use applications include: chocolate confectionery wrap, lidding for plastic tubes and pots - particularly in the diary sector - and for instant dried soups both as unsupported foil and laminated to other material such as paper, lidding material for pharmaceutical blister packs, paper/ foil/film laminated in sachets for dried soups, causes etc., vacuum-packed coffee and as a laminate in aseptic liquid car tonnes in gauges of 6-7 microns. However, it is clear that the development of polymer technology, plastic film is now able to replace aluminium foil in many of its traditional applications. Among the new developments, the metallocene 8

technology, high-barrier films and active packaging. Aluminium foil has threat mainly from BOPP polyethylene, , polyamide, PVC and cellulose. But, none of the competing materials has the same properties as aluminium foils have. Still, these competing materials will affect the overall consumption of aluminium foils. Therefore, if the government of India bans on thin gauge of polyethylene, the demand of aluminum foil would go up by 100 per cent. Reynolds and Freshwrapp The launch of Reynolds brand aluminium foil by Alcoa brought a new fillip to the aluminium foil market in India but soon the dream of Alcoa collapsed with the Indian sentiment of buying good product at cheap price. Reynolds which was offering 6 meters of aluminium foil at about 10 per cent higher price of existing Freshwrapp foil of 9 meters. Indians use everything from paper napkins to newspapers to wrap food. We plan to change that, Douglas Cohen, general manager Asia Pacific, Alcoa Inc had said at the launch of Reynolds in India. Alcoa was hoping to have 25 per cent share of the Rs 320 million aluminium foil market by 2006. At the launch Reynolds had tied up with Optimum Marketing Metrics (OMM) which is also the sole distributors for Hersheys, Master Foods, Crayola and Dole juices in India. The product will be launched in a phased manner starting with Delhi, NCR, Chandigarh and other selected cities in North India. In the second phase, Mumbai and other southern metros were planned to be tapped.

But, the existing player Hindalco showed maturity and enhanced extensive distribution network for its kitchen utility products, including aluminium wrapping foils and semirigid containers (casseroles). Hindalco enjoys with 40 market share of the 2,500-tonnes kitchen foils market. The company is confident of growing this market, which is still at a nascent stage when compared to the global size. Industry Industr y outlook All aluminium foils consumer industries are poised for growth. Even in difficult years of economic recession these industries have maintained the growth rate of 10-15 per cent. Primarily being a close associated of human being, industries like cigarette, process food packaging and pharmaceutical are expected to grow faster in the years to come and hence a greater chance for foils growth. A school of though expects the industry to grow at 10-15 per cent while more optimist analysts predict that the industrys current growth rate would continue till the ban on thin gauge plastic use is not freely permitted by the government and by the concerned courts. This growth will mainly be driven by changing lifestyles rising disposable income levels and growing concern of health and hygiene. Total foil market in India is predicted to reach the height of 100,000 tonnes by 2010. If this really happens, India would require additional capacity. Thus, the aluminium foil industry is poised for spectecular growth in future.

GGG

Metalworld January 2006