The ministry has noted that while these two major PSUs are continuously making profits, they are, nevertheless, functioning under multiple pressures of a more competitive environment where volatile LME prices hit domestic industry hard. Besides, there is also a likelihood of further drop in custom duty on aluminium over the medium to long-term period.

The ministry has noted that while liberalisation of the aluminium industry is expected to bring in new investment, given its comparative advantage in the sector, it has also brought greater volatilities and new threats for the existing players. International commodity markets are notoriously volatile. Aluminium prices reached their zenith in 1980 on the LME at $2855 per tonne. They subsequently crashed to $1050 per tonne in 1993-94 onaccount of industrial recession in developed countries and dumping by the CIS countries.

Aluminium prices rose sharply thereafter, but have been falling continuously since August 1997. The average monthly price on LME in November 1998 dipped below $1300 per tonne for for the first time since August 1994 and was at $1295 per tonne.

With sharp decline in growth rates in South-east Asia and amid fears of global recession, the forecasts are not very optimistic as the market analysts are not anticipating a recovery before the year 2000. Global metal producers are, therefore, facing one of the worst price recessions on record.

India was a relatively closed economy till quite recently. The aluminium Control Order ensured cost plus returns to the aluminium companies in the country. The general drift of the government's economic policy during the last few years, however, has been towards liberalisation in the domestic sector and greater outward orientation in trade policy in the external sector. As a result, theAluminium Control Order was abolished in 1989.

Aluminium prices in the country are now aligned to the London Metal Exchange (LME) rates. Entry barriers into the industry have also been removed resulting in greater competition. On the external front, tariffs have been progressively lowered from over 100 per cent to about 30 per cent at present and there is a likelihood that these would fall further as India has joined the World Trade Organisation (WTO) regime.

India has large resources of high grade bauxite deposits placing the country 5th in this respect in the world and only next to Australia, Guinea, Brazil and Jamaica. In this context, the steel and mines ministry noted that even at an anticipated consumption of about 7 million tonnes per year of bauxite, these reserves are expected to last over 350 years.

About 89 per cent of the recoverable reserves of bauxite are of metallurgical grade. The major bauxite reserves are concentrated on the east coast namely, Orissa and Andhra Pradesh.

Aluminium hasa variety of applications in power transmission and distribution, manufacture of aircraft, spacecraft, kitchenware, architectural fittings, industrial explosives and automobiles,There are two public sector producers in the primary aluminium sector, namely Nalco and Balco and three private sector producers namely, Hindustan Aluminium Company (Hindalco), Indian Aluminium Company (Indal) and Madras Aluminium Company Ltd (Malco). The total installed capacity is about 7,14,000 tonne per year. In the period April-December, 1998 the cumulative domestic production of aluminium declined to 3,96,612 tonne as against 4,09,008 tonne in the same period of the previous year. The cumulative production of aluminium the stated period in the current fiscal year also fell short of the target which was 4,65,373 tonne. In December, 1998, the total domestic aluminium production was only 49,460 tonne as against the target of 53,591 tonne.

However, the ministry is optimistic that the demand for aluminium is expected to growrapidly with increasing uses of this commodity in construction, power transmission, transport and packaging sectors.

The major problem with Balco is the upgradation of its Kobra plant which uses the obsolete Soderberg technology as compared to the latest technology of pre-baked anodes used in the smelter of Nalco. According to the study conducted by the ministry, Balco has to undertake modernisation of its smelter to improve its operational efficiency. Balco has, however, undertaken a project for modernisation of Kobra smelter in a phased manner.Though Balco is formulating a strategy to undertake a more comprehensive and effective modernisation, the ministry feels that the company also has to gear up its marketing strategy.

With a view to enter into more profitable sectors in downstream products, Balco is implementing the project for setting up of a new cold rolling mill of 40,000 tonne per year capacity along with associated facilities at Kobra aluminium complex at an investment of Rs 157.50 croreincluding a foreign exchange component of Rs 103.11 crore based on the price level of the last quarter of 1996. When implemented, this mill will manufacture sheets of below 0.4 mm thickness. As a result, not only the market share of the company will increase, but also the product mix will be in line with market demand.

The company has produced 67,721 tonne of aluminium in April-December 1998 as against 65,653 tonne in the same period in the previous year. The production in April-December, 1998 fell short of the target which was 70,750 tonne for the period. The company's sales turnover in 1997-98 increased to Rs 848.97 crore from Rs 760.57 crore in the previous year. The company's net profit in 1997-98 also increased to Rs 79.84 crore as against Rs 61.79 crore in 1996-97. However, the net profit of the company in 1995-96 was as high as Rs 163.33 crore with a low sales turnover of Rs 691.19 crore. Keeping in view the performance of the company, the ministry is examining the recommendation of theDisinvestment Commission.