A Study on India's Revealed Comparative Advantage in Non-Ferrors Metal Trade-Ajay Dadpe

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(Appendix 1)

“To Measure India’s Trade Competitiveness in World Market

of Non-Ferrous Metals like Aluminium and Zinc using the

Balassa Indices and Trade Balance Metrics and Reconnoitre

the Macroeconomic factors that Influence this

Competitiveness”

Dissertation Report for

Post Graduate Programme for working Executives (PGPWE)

By

Ajay Dadpe

Under the Noble Guidance of

Professor Pradyumna Dash

Associate. Professor (Economics& Business Environment)

IIM Raipur

Indian Institute of Management

Raipur

29.11.2015

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Annexure 2

Declaration

IAjay Dadpe, a student ofPost Graduate Programme for working Executives (PGPWE),

Batch 2014-16 have completed this report on the title“To Measure India’s Trade

Competitiveness in World Market of Non-Ferrous Metals like Aluminium and Zinc

using the Balassa Indices and Trade Balance Metrics and Reconnoitre the

Macroeconomic factors that Influence this Competitiveness”as a part of Dissertation

project for fulfilment of Post Graduate Programme for working Executives at IIM

Raipur.This Report has the requisite standard and to the best of my knowledge no part of it

has been reproduced from any other Study, monograph, report or book.

Date: 29.11.2015 Signature of the Student

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(Appendix 3)

Certificate of Approval

The following Study titled "To Measure India’s Trade Competitiveness in World Market

of Non-Ferrous Metals like Aluminium and Zinc using the Balassa Indices and Trade

Balance Metrics and Reconnoitre the Macroeconomic factors that Influence this

Competitiveness” is hereby approved as a study carried out and presented in a manner

satisfactory to warrant its acceptance as a prerequisite for the award ofPost Graduate

Programme for working Executives (PGPWE) for which it has been submitted. It is

understood that by this approval the undersigned do not necessarily endorse or approve any

statement made, opinion expressed or conclusion drawn therein but approve the report only

for the purpose it is submitted.

Name : ________________________ Signature: __________________

Faculty Supervisor : ______________________

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(Appendix 4)

Abstract

“To Measure India’s Trade Competitiveness in World Market of Non-

Ferrous Metals like Aluminium and Zinc using the Balassa Indices and

Trade Balance Metrics and Reconnoitre the Macroeconomic factors that

Influence this Competitiveness”

By

AJAY DADPE

Today, International trade is vital for the growth of any economy. Free trade among nations

not only impacts the growth and development but positively influences the standards of

living. It is very important to remain competitive in the global markets and have a fair share

of the trade. The article is relevant to the contemporary trade environment in India and aims

to examine India’s Relative Competitiveness for some commodities with the major

exporting/manufacturing countries of the world for that commodity.

- The scope of this study is to examine India’s trade performancein Non-Ferrous metals

like Aluminium & Zinc on a global level. Scholars and Economists have in the past,

derived various indexes in international trade economics to measure the relative /

comparative advantages and competitiveness. In this study, we make use of such

metrics and focus on the evidence of the revealed comparative advantage and revealed

competitiveness for India for the metal commodities with respect to similar

performances of leading countries & nations.

- The scope of the basic research is limited to identification of major contributing

factors influencing the international trade of non-ferrous metals Aluminium, and Zinc

only by India.

- The academic investigation to identify factors affecting industries does not probe into

their operational aspects.

The method by which we determine the trade performance parameters is by first collecting

international trade data on imports and exports of Aluminium and Zinc from reliable sources,

(Correspondence with the Dy. Director General of Commercial intelligence and statistics,

ministry of commerce was made for guidance in data collection.) Once data is collected from

International trade database, we compute the various indices like Revealed Comparative

Advantage (or Disadvantage), Trade Balance index, Trade Competitivenessusing expressions

derived by eminent economists and researchers. Once the trade competitiveness is revealed,

we investigate various factors, including Resource Base, Supply Demand dynamics, and

government policies and strategies that directly or indirectly impact these trade performance.

Using the classroom learnings we critically analyse and separate the factors that are

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responsible for present trade results. Finally some recommendations are made to improve

India’s position in the international trade. The recommendations however, need further

research as the supply and demand equations of the commodities under study are not simple

math and are more complex in behaviour.

We note the following findings:

- It is seen that India has rich reserves of Aluminium and Zinc Ores, however, It does

not produce to its potential levels, due to several reasons, like higher tariff’s, Mining

Royalties, Held up Projects, Pending Environmental clearance’s from MOEF, etc. The

trade balance index for aluminium is negative which means imports exceed exports

and thus a low Revealed Comparative Advantage is witnessed.

- It is also evident that there is an increasing demand for Aluminium as well as Zinc in

India as well as in international market and an opportunity to gain higher trade shares

on global markets. The trends display trade competitiveness of other economies in the

nonferrous sector under study.

- We see how Trade Policies set by the government like Implementation or suspension

of various taxes, Penalties, Duties etc. affect the trade performances.

- China’s growing dominance is also a threat to the comparative advantage of countries

with labour intensive manufacturing. China with full backing of its government

policies, energy subsidies and tax rebates has built excessive capacities and stockpile

of aluminium and products thereof. Due to current economic slowdown, Chinese

domestic demand has drastically reduced, so China is selling its aluminium at costs

lower that the operating costs, This is impacting Indian manufacturers and may lead to

unemployment. India and China are not just similar in their size but also similar with

respect to factor endowments. So this article explores the structure of RCA for both

India and China and the extent to which these economies compete in the global

markets.

-----------------------------x---------------------------------------------------x---------------------------

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(Annexure 5)

Acknowledgement

I take this opportunity to express my gratitude to all the department faculty members of IIM

Raipur, for their teachings, guidance and time boundless support. I also wish to express my

foremost and sincere thanks to our honourable director Prof. B.S.Sahay for sharing his

wisdom and providing us his noble guidance throughout the PGPWE course.

My earnest acknowledgements and special thanks to Professor Pradyumna Dash , my

Dissertation mentor and guide for his most valuable guidance and continuous support

throughout this research without which I could not have completed this project.

I also place on record, my sincere thanks to all my colleagues of PGPWE 2014-16 and each

member of our senior batch PGPWE 2013-15 for their cooperation and knowledge sharing

during various forums and occasions.

I owe my unequivocal words of appreciation to the Dean, Professors and Associates of

ALBA Institute, Greece, for their guidance and teachings on distinctive topics during our

International immersion programme which encouraged me to take up this topic for my

Dissertation work.

______________________

(Signature of the Student)

Name : Ajay Dadpe

Roll No:14PGPWE002

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(Appendix 6)

TABLE OF CONTENTS

Sr FIGURE Page No

1 Abstract 4

2 Acknowledgement 6

3 List of figures 8

4 List of Tables 9

5 List of Appendices -

6 List of Abbreviations 10

7 Introduction 11

8 Problem Statement 12

9 Objective 13

10 Research Design and Methodology Adopted 13

11 The Basic CA 14

12 The Revealed Comparative Advantage / Balassa Index 15

13 The Trade Balance Index 15

14 The Relative Trade Advantage 16

15 The revealed Competitiveness 17

16 Part-A Aluminium : Understanding the Economics and Market of Aluminium 19

17 Past-B Zinc : Understanding the Economics and Market of Zinc 44

18 Conclusion 57

19 Recommendations. 59

20 References 61

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(Appendix 7)

LIST OF FIGURES

Sr FIGURE Page No

1 World Aluminium Map 21

2 Demand Curve for Aluminium 22

3 Aluminium Price Trends 22

4 RCA&C-Aluminium : COMPARISON CHART 24

5 RCA Trend Analysis :Aluminium 25

6 World Bauxite Reserves Distribution 34

7 Levelised Cost for Electricity 35

8 World Coal Recoverable Reserves : A pie Chart 36

9 Tax Comparison Chart 39

10 Zinc Supply Demand Curves 45

11 RCA&C-Zinc : COMPARISON CHART 48

12 RCA Trend Analysis :Zinc 49

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Appendix 8

LIST OF TABLES

Sr Table Description Page No

1 TABLE OF ECONOMIC INDICES USED FOR ANALYSIS 18

2 ANNEXURE-A TABLE-1 : RCA&C OF INDIA : ALUMINIUM 23

3 TABLE OF TOP ALUMINIUM EXPORTERS 24

4 TABLE OF TOP ALUMINIUM PRODUCERS 24

5 ANNEXURE-A TABLE-2 : RCA&C OF CHINA : ALUMINIUM 27

6 ANNEXURE-A TABLE-3 : RCA&C OF RUSSIA : ALUMINIUM 28

7 ANNEXURE-A TABLE-4 : RCA&C OF CANADA : ALUMINIUM 29

8 ANNEXURE-A TABLE-5 : RCA&C OF AUSTRALIA : ALUMINIUM 30

9 TABLE OF WORLD ZINC RESERVES 44

10 ZINC MARKET : SUPPLY DEMAND PRICE 46

11 ANNEXURE-B TABLE-1 : RCA&C OF INDIA : ZINC 46

12 TABLE OF TOP ZINC EXPORTERS 48

13 TABLE OF TOP ZINC PRODUCERS/RESERVES 49

14 ANNEXURE-B TABLE-2 : RCA&C OF CHINA : ZINC 51

15 ANNEXURE-B TABLE-3 : RCA&C OF AUSTRALIA : ZINC 52

16 ANNEXURE-B TABLE-4 : RCA&C OF USA : ZINC 53

17 ANNEXURE-B TABLE-5 : RCA&C OF PERU : ZINC 54

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Appendix 11

Abbreviations

Sr Acronym Description

1 BMT Billion Metric Tonnes

2 CRU Commodities Research unit

3 ITC International trade Centre

4 Mij The Commodity Under Study Imported by India from the World

5 Mit All Commodities Imported by India from the World.

6 MMT Million Metric Tonnes

7 Mnt All Commodities Imported by All the Countries (The World).

8 MT Metric Tonnes

9 RC Revealed Competitiveness

10 RCA&C Revealed Comparative Advantage & Competitiveness

11 RCA1 Basic Comparative Advantage

12 RCA2 Revealed Comparative Advantage

13 RCA3/RCA4/RCA5 Trade Balance Index

14 RCA6 / RTA Relative Trade Advantage

15 RMA Relative Import Advantage

16 RXA Relative Export Advantage

17 TBI Trade Balance Index

18 USGS United States Geological Survey

19 Xij The Commodity Under Study Exported by India to the World

20 Xit All Commodities Exported by India to the World.

21 Xmj The Commodity Under Study Imported by all countries(The World)

22 Xnj The Commodity Under Study Exported by all countries(The World)

23 Xnt All Commodities Exported by All the Countries (The World).

Appendix 12

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INTRODUCTION:

BRIEF SUMMARY:

During the course of macroeconomics in Term-V, topics on Fiscal Policy and factors

influencing International Trade were discussed and learnt. In addition to that, the

international trade metrics of RCA, Balassa Index, and TBI were learnt during the

international immersion at ALBA Greece.

The contemporary scenario of aluminium industry is well known to me as I work in the

Aluminium and Power business. Knowing the current capacities in the manufacture of

Aluminium and Zinc, my hypothesis was that India had a trade advantage and I was

curious in knowing our country’s position.

I took this opportunity to further probe the facts prevailing in the international markets of

Aluminium and Zinc, both manufactured by Vedanta, my parent company. I decided to

take up this study and underwent several articles published in newspapers, HBR and

Aluminium Journals.It was thenI decided to take up a basic research to explore and

understand the trade competitiveness and measure India’s performance in the trade of

Aluminium and Zinc.

PREMISE:

This primary research pursues to examine the comparative advantage or disadvantage that

India has in Producing and exporting Aluminium, and Zinc (Non-Ferrous Metals). The

intent is also to quantify the extent to which India has performed for these sectors over a

period of last 10 Years. The use of modern metrics like the “Revealed Comparative

Advantage” (RCA) and the Trade balance Index (TBI). The Later part investigates the

macroeconomic factors influencing the trade and suggests measures to counter the

shortcomings.

LITERATURE SURVEY:

Not much literature in a package form is available on the India’s trade competitiveness in

the Non-Ferrous metal commodity segment. Although few literatures as mentioned in the

reference list have similar studies for other economies, the metrics for performance

measurement are relatively new to Indian business and there are no articles published in

this arena prior to 2009. I thought of doing a primary know-how type research to

examinethe trade performance using these metrics.

The reason for doing this research is not only to check the competitiveness and trade

comparative advantages, but also explore further regarding the economic factors that

affect this trade. Dispersed literature is available in some journals like CRU

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(Commodities Research Unit) and those now-and –then published articles on interviews

of business leaders in newspapers and magazines.

Another reason for conducting this study is that presently the focus on International trade

is because of the business community complaining about the Govt policies and trade

barriers, and not because the government has identified this need critical to the nations

GDP and overall growth. My literature may provide some insights and connections of

various policies and factors that influence the trade. Nothing new is discovered but I hope

that such literatures result in debates and discussions and the outcome of which may be

food for thought to the policy makers.

My efforts in doing this project shall contribute further to the literature in this field by

andthe approach of measuring RCA, TBI and using these metrics to monitor

performances.

The recommendations made can also be researched further to determine cross-

implications of such measures, (For Ex: Import Protectionism may work in the interest of

some players while may not be in favour of other players or may send wrong signals to

foreign investors. Similarly debate between industrialisation and pollution are further

research subjects and cannot be merely implemented on the basis of recommendations.)

A Revealed comparative Disadvantage, or Negative Trade Balance Index denotes loss of

opportunity in the trade of that particular commodity. The problem statement can be

derived from this

PROBLEM STATEMENT:

Although India has rich reserves of Bauxite (Aluminium Ore),and Sphalerite (Zinc Ore)

and does transact in these primary non-ferrous metals at the international trade platform,

it does not export to its full potential thus inadequate to contribute significantly to the

nation’s GDP.It is hypothesised that India has a Revealed Comparative Disadvantage vis-

à-vis other global players in the global trade of these metals.

The problem may not be due to lack of demand or unavailability of resources and

capabilities, but due to paralysed government policies and poor response in handling the

trade challenges.

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OBJECTIVE OF THIS DISSERTATION:

i) Identify India’s international trade position on the subject minerals by using

metrics like RTA, TBI.

ii) Investigate the microeconomic factors responsible for the shortage portion on the

curve of Potential Vs Actual. Also identify the macroeconomic factors affecting

the international trade.

iii) Suggest recommendations for improving exports and further scope for doctoral

research in the field of fiscal policy matters related to non-ferrous metals.

RESEARCH DESIGN:

A) APPROACH AND METHODOLOGY

Broadly speaking, the approach undertaken to make this study can divided into four steps,

This approach is taken to analyse Aluminium and Zinc separately under Part A and

Part B.

- Step 1 : Examine grossly the trade advantage/disadvantage for non-ferrous metals

Produced by India (Indian firms) by data collection and computing out the

RCA, TBI and other metrics and carrying critical Analysis of this data.

- Step – 2 : Investigate reasons & microeconomic factors by

(i) Study the domestic demand & supply for the metals.

(ii) Examine the challenges faced by various firms in developing capacities and

manufacturing these metals to their potential levels. ( Vedanta, Birla, and other

Public Sectors) (Data collection, analysis and graphical validation for the

various causes). This step is considered operational aspect and excluded from

this study.

- Step 3:Explore the External causes & Macroeconomic factors that affect the price,

flow and trade of these commodities. Apply textbook learnings in identifying and

attributing these causes.

(i) Trade data collection from International Trade website (ITC), Balassa Indices.

(ii) Visiting and collecting details of Indian imports and exports from, DGCIS

(Director General of Commercial Intelligence and Statistics - Kolkata),

Ministry of commerce, Govt. of India.

- Step 4 Recommendations.

B) SAMPLING AND COLLECTION OF DATA:

This study makes use of mostly secondary data. Initially correspondence was made with

the Director General of Commercial Intelligence and Statistics to gather the import export

data, as per the guidance of the DG, ordering data required special privileges of being

govt agency and the exchange was at a price, another method suggested was picking the

data one by one requiring tedious work. This was followed. Moreover trade data for other

countries is not found on Indian website so the data is gathered from International Trade

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database The Primary sourcing and data gathering related to Imports, Exports and

International trade is not possible from the point of data unavailability , access restrictions

and multiple information sources. For the purpose of analysis and evaluation, secondary

data from reliable national and international sources like CRU, Balassa Index,

International Trade Centre, LME, and other statistical trade portals is used.

C) DATA ANALYSIS :

The approach is similar to the one carried during my international immersion project.

In this part, use of statistical tools is not extensive as data for severable variables is

not easily available and basic trend analysis is sufficient to substantiate the hypothesis

made. Study is carried out for a period of last 10 years (2005-2014), thecalculations

has been carried out on two broad indices to measure international trade performance.

The Balassa Index or measure of comparative advantage and an alternate measure to

examine competitiveness, The Trade Balance Index.

Data gathered are entered in tables and 5 various measures of the RCA are computed

(Highlighted portion in each table).

Trade flows and computations are carried out for all major exporters/manufacturers

and

Charts plotted to compare the performances

1. Computing The Basic Comparative Advantage (RCA1) or Liesner Index:

Liesner, 1958 had contributed to the empirical study and literature of comparative

advantage. He proposed a simple measure for calculating the Comparative Advantage

which is expressed as

Where X represents Exports, irepresents a country, j represents a commodity (or

Industry), and n represents a set of countries (World)

So when computing RCA1 for India:

Xij – The Commodity under study (Aluminium/Zinc) Exported by India to the World.

Xnj – The Commodity under study (Aluminium/Zinc) Exported by all Countries

together

2. Computing the Revealed Comparative Advantage (RCA2) or Balassa Index:

RCA1 = Xij / Xnj 1

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The advanced measure of RCA as proposed by Bela Balassa, 1965 and which was

widely accepted is expressed as

Where X represents Exports, irepresents a country, j represents a commodity (or

Industry), t represents a set of commodities (industry) and n represents a set of

Countries (World)

When computing RCA2 for India:

Xij – The Commodity under study (Aluminium/Zinc) Exported by India to the World.

Xnj – The Commodity under study (Aluminium/Zinc) Exported by all Countries

Together(World).

Xit – All other Commodities (Good/Service) Exported by India to the World.

Xnt – All other Commodities (Good/Service) Exported by all Countries together

(World)

Assessment: If RCA2 > 1 then the country is said to have revealed a comparative

Advantage in that commodity.

If RCA2 < 1 then the country is said to have revealed a comparative

Disadvantage in that commodity.

The RCA2 measures a country’s exports in a particular commodity (or industry) with

respect to its total exports andto the corresponding exports of a set of countries

(world). In our research, we have computed the RCA2 for India and other

Countries for comparison.

This expression however has omission of imports so in our analysis some more

alternate index which provide better index like the Trade Balance Index (Balassa

1965).

3. The Trade Balance Index (RCA3 / RCA4 / RCA5)

This RCA recognizes the exports as well as simultaneous imports of a commodity and

set of commodities for a country and can be expressed as

RCA2 = (Xij / Xit) / (Xnj / Xnt)

= (Xij / Xnj) / (Xit / Xnt)

RCA3 / RCA4 / RCA5 = (Xij / Xit) / (Mij / Mit) ---- RCA3

= (Xij / Mij) / (Xit / Mit) ---- RCA4

= LN (Xij / Mij) / (Xit / Mit) x 100----- RCA5

2

3

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Where X represents Exports, M represents Imports. irepresents a country, j represents a

Commodity(or industry), and t represents a set of commodities (industry)

So when computing RCA4 (TBI) forIndia:

Xij – The Commodity under study (Good/Service) Exported by India to the World.

Mij – The Commodity under study (Good/Service) Imported by India from the World.

Xit – All the Commodities (Good/Service) Exported by India to the World.

Mit – All the Commodities (Good/Service) Imported by India from the World

Assessment: If TBI > 0 then the country is said to be a net exporter.

If TBI < 0 then the country is said to be a net importer.

The TBI describes whether a country is a net exporter or net importer for a particular

commodity under study.

Thomas Vollrath (1991) presented three alternate ways of measuring a country’s RCA

namely Relative Trade Advantage (RTA) (RCA6)(Which considers RXA & RMA i.e. the

relative export and import advantages), Logarithmic of Relative Export Advantage (RCA7)

&Revealed Competitiveness (RC) (RCA8). The Log of RXA being similar to the RCA need

not be computed. We shall rather focus on the other two alternate measures the RTA and RC

for the data.

4. Relative Trade Advantage ( RTA) (RCA6)

The relative trade advantage is calculated as the difference between Relative Export

Advantage (RXA), which is equivalent to BalassaIndex (RCA2), Relative Import

Advantage (RMA). The difference in Vollrath’s RXA from Balassa’s original RCA2

Index is that it prevents double-counting. The RTA can be expressed as

RTA (RCA6) = RXA - RMA

= [(Xij / Xit) / (Xnj / Xnt)] - [(Mij / Mit) / (Mnj / Mnt)] 4

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Where X represents Exports, M represents Imports. irepresents a country, j represents

a commodity (or industry), t represents a set of commodities (industry) and n

represents a set of countries (World)

So when computing RCA6 (RTA) for India:

Xij – The Commodity under study (Good/Service) Exported by India to the World.

Mij – The Commodity under study (Good/Service) Imported by India from the World.

Xit – All the Commodities (Good/Service) Exported by India to the World.

Mit – All the Commodities (Good/Service) Imported by India from the World

Xnj – The Commodity under study (Good/Service) Exported by the World (All

Countries)

Mnj – The Commodity under study (Good/Service) Imported by the World (All

Countries)

Xnt – All the Commodities (Good/Service) Exported by the World (All Countries)

Mnt – All the Commodities (Good/Service) Imported by the World (All Countries)

Assessment: Positive (RTA>0) value reveal a comparative/competitive advantage whereas

negative value (RTA<0) indicate comparative/competitive disadvantage.

Vollrath (1991) suggested that the RC index (RCA8) is preferable since supplyand demand

balance is embedded in the index.

5. Revealed Competitiveness :

Sometimes the various types of RCA are not sufficient statistics for competitiveness.

The trade competitiveness inferred from actual trade flows is inferred as revealed

competitiveness and expressed as

Where RXA and RMA are Relative Export and Import Advantages respectively.

Assessment: Positive (RC>0) value reveal a competitive advantage whereas

negative value (RC<0) indicatescompetitive disadvantage.

RC = Ln RXA – Ln RMA 5

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TABLE OF ECONOMIC INDEXES USED FOR CALCULATION

Economist Economic Index

Expression Significance Result Interpretation

Liesner (1958) Comparative Advantage RCA1 RCA1 = Xij / Xnj

Simplest Measure of RCA for a single product /service/industry. (Does not consider relativeness to set of commodities or All products)

If RCA1 > 1 - Comparative Advantage If RCA1 < 1 - Comparative Disadvantage

Bela Balassa (1965)

Revealed Comparative Advantage

RCA2 RCA2 = (Xij/Xnj) / (Xit/Xnt)

A comprehensive measure of RCA, measures a country’s exports of a particular commodity (or industry) relative to the country’s own total exports and to the corresponding exports of a set of countries (World). (Omits the Imports of that commodity by the country.)

If RCA2 < 1 - Country has a Comparative Disadvantage in exports of the Commodity under study. If RCA = 1 - Country has a Fair Share of Exports of the Commodity under study. If RCA2 > 1 - Country has a Comparative Advantage in exports of the Commodity under study.

Bela Balassa (1965)

Revealed Comparative Advantage (Country trade performance / Trade Balance Index)

RCA3 RCA3 = (Xij-Mij) / (Xij+Mij)

An another RCA Index to measure a country’s own trade performance only and recognises the simultaneous Exports and Imports of a particular commodity (Industry).

If RCA3 (TBI) < 0 - Country is a Net Importer. If RCA3(TBI) = 0 - In Balance If RCA3(TBI) >0 - Country is a Net Exporter

Thomas Vollrath (1991)

Relative Export Advantage Relative Import Advantage Relative Trade Advantage

RXA RMA RTA

RXA = RCA2= (Xij/ Xit) / (Xnj/ Xnt) RMA = (Mij/ Mit) / (Mnj/ Mnt) RTA = RXA-RMA = (Xij/ Xit) / (Xnj/ Xnt) - (Mij/ Mit) / (Mnj/ Mnt)

This is the Trade Intensity Measure of RCA. The Relative trade advantage is the difference between relative export advantage and relative import advantage

If RTA > 0 = Relative Trade Advantage If RTA < 0 = Relative Trade Disadvantage

Thomas Vollrath (1991)

Relative Competitiveness RC RC = LN RXA - LN RMA

This Trade Intensity Measure gives the relative competitiveness of the country in the trade of commodity under study.

If RC > 0 = Revealed Competitiveness

Source: Self framed table used in International Immersion Project

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PART A - ALUMINIUM

Economics of Aluminium & The World Aluminium Market

Consumption wise Aluminium ranks Second (After Steel) Globally. While two centuries ago,

aluminium was seen as very expensive silver metal manufactured from clay. The brief history

of aluminium growth is indicated

- 1850-1890: Only 200 Tonnes of Aluminium was Produced and Consumed.

- 1890-1900: Global Aluminium Production rose to 28000 Tonnes.

- By 1930: Global Output increased 10times to 270, 000 Tonnes.

- By 1950:1 Million Tonnes and 1975: 10 Million Tonnes.

- Present production volumes exceed 50 Million Tonnes.

- A Minimum of 60 Million production and consumption is expected in 2016.

Nowadays, Economists regard the higher rate of aluminium consumption i.e. in terms of Kgs

per capita as one of the clear indicators of a robust and well-developed economy.

Obliviously, the leaders in terms of aluminium consumption are those states with a high

GDP, including USA, Japan and the Developed European nations. I shall refrain from

indicating the various causes for the rapid growth and rather focus to the supply demand

analysis.

Trade:Although aluminium is an exchange commodity, it is not physically traded on stock

exchange. The actual physical delivery occur under contracts between the producer and

buyer. Multi commodity exchange is the platform market for aluminium and other metals.

The London Metal Exchange is the largest market. Nowadays futures contracts for raw

materials are traded there As a result of this trading activity, a price is fixed which serves as a

guide for all producers and consumers throughout the world. The exchange itself does not

buy or sell anything, it only provides a trading platform for professional market players -

brokers.

Aluminium accounts for one third of all the contracts made on LME and is the world’s largest

exchange commodity in metals in terms of trading volumes. The exchange serves as a

platform where buyers can buy and sellers can sell under an exchange-traded contract at an

established price. All typical contracts mention the quantity (minimum 25Tonnes for

aluminium), delivery terms, (whether direct to buyer site or exchange warehouse) and the

period of performance/delivery.

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Supply& Demand: We can broadly classify Aluminium supply in Upstream Segments

(Players involved in Mining, Refining, Production of Primary Aluminium and Various Alloys

in various forms like slabs, wire rods, sheets ingots etc.) and Downstream Segments are small

producers procuring ram materials from outside suppliers and in making of aluminium

products.

Refer the Geographic maps indicating the supply concentrations, The largest bauxite reserves

are in the Tropical and Subtropical regions like Southeast Asia, Australia, Parts of America

and Africa and for this reason production facilities are also located in these zones which

makes export of more complex value added products possible.

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WORLD ALUMINIUM MAP

Source: CRU Database, Aluminiumleader.com

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On an Average every year there is a rise in demand of 5-9 %. The increase in aluminium

consumption takes place due to growing global urbanisation and industrialisation and growth

trend is due to State-of-the-art developments in the automobile industry, electrical

engineering, Aerospace industry and other application of aluminium.

Based on the last 5-years demand data and price levels, a demand curve of aluminium is

plotted.

42024 KMT / $ 2250

46075 KMT / $ 2500

47988 KMT / $ 2100

50596 KMT / $ 1890 54126 KMT / $ 2000

58136 KMT / $ 1430

0

500

1000

1500

2000

2500

3000

2010 2011 2012 2013 2014 2015

PR

ICE

( $

/ T

)

Qtt

5-Year Demand Curve (Enlarged Portion)

40000

Thousand Metric Tonnes

70000

Page | 23

Annexure -A – Table 1

TABLE OF REVEALED COMPARATIVE ADVANTAGE AND COMPETITIVENESS (ALUMINIUM – INDIA)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Indian Exports to World (All Products) Xit

10,03,52,637 12,12,00,606 14,58,98,053 18,18,60,898 17,67,65,036 22,04,08,496 30,14,83,250 28,95,64,769 33,66,11,389 31,75,44,642

Indian Imports from World (All products) Mit

14,08,61,667 17,82,12,440 21,86,45,294 31,57,12,106 26,64,01,553 35,00,29,387 46,24,02,791 48,89,76,378 46,60,45,567 45,93,69,464

Indian Exports to world (Aluminium) Xij

6,56,996 7,70,067 10,37,811 12,47,398 9,79,112 13,28,025 14,23,415 15,79,450 20,78,003 25,82,504

Indian Imports from world (Aluminium) Mij

7,56,654 10,90,209 14,40,152 15,90,317 14,17,460 20,63,534 28,34,980 30,81,740 31,77,639 35,50,913

World Total Exports (All Products) Xnt

10,36,75,81,282 11,98,64,37,555 13,82,34,95,887 15,97,79,16,880 12,31,18,04,550 15,05,25,25,130 18,05,95,06,359 18,09,19,43,586 18,55,24,49,750 18,68,55,83,537

World Total Imports (All products) Mnt

10,61,39,92,430 12,24,34,48,946 14,09,48,84,587 16,35,37,48,703 12,58,76,39,030 15,24,18,96,183 18,22,95,45,508 18,22,67,50,789 18,58,46,48,136 18,77,29,73,047

World Total Exports (Aluminium) Xnj

10,42,77,019 13,77,10,628 15,73,12,584 16,36,80,121 11,23,21,679 14,65,99,129 17,34,42,009 15,93,47,403 16,48,54,812 17,28,45,415

World Total Imports (Aluminium) Mnj

10,50,76,272 13,78,12,082 15,77,88,823 15,94,51,925 10,97,11,803 14,29,04,257 17,15,29,557 15,65,98,045 15,80,72,166 17,05,43,653

RCA1 0.006 0.006 0.007 0.008 0.009 0.009 0.008 0.010 0.013 0.015

Revealed Comparative Advantage 0.65 0.55 0.63 0.67 0.61 0.62 0.49 0.62 0.69 0.88

Trade Balance Index -0.07 -0.17 -0.16 -0.12 -0.18 -0.22 -0.33 -0.32 -0.21 -0.16

Relative Trade Advantage 0.11 0.01 0.04 0.15 0.00 -0.01 -0.16 -0.11 -0.11 0.03

Relative Competitiveness 0.23 0.15 0.20 0.29 0.10 0.08 -0.08 -0.07 -0.09 0.04

Source : ITC Website, http://www.trademap.org/Country_SelProductCountry_TS.aspx & Balassa Index, http://www2.econ.uu.nl/users/marrewijk/research/countries/IND.htm

All Figures are in Thousand USD

Source: All Highlighted figures are self-calculations based on data from International Trade Centre / Trade map.

http://www2.econ.uu.nl/users/marrewijk/research/countries/IND.htm

Page | 24

TOP ALUMINIUM PRODUCERS

Country Avg Production in ThousandMetric tonnes

China 21,500

Russia 3,950

Canada 2,900

USA 1,950

India 1,700

Source : USGS Figures (United States Geological Survey)

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

India China Russia Canada Australia

Revealed Comparative Advantage and Competitiveness - Aluminium

RCA TBI RTA RC

.TOP ALUMINIUM EXPORTERS

RCA TBI RTA RC

India 0.64 -0.19 -0.01 0.08

China 0.94 0.27 0.28 0.30

Russia 1.80 0.72 1.27 0.88

Canada 2.26 0.44 1.31 0.84

Australia 2.51 0.59 1.87 1.06 Source : Computed Results ( Data Gathered from ITC Website Statistics

Database )

Page | 25

RCA TREND COMPARISONS – ALUMINIUM

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Aluminium - China

Revealed Comparative Advantage Trade Balance Index

Relative Trade Advantage Relative Compitativeness

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Aluminium - Russia



0.0

1.0

2.0

3.0

4.0

5.0

6.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Aluminium - Canada



0.0

2.0

4.0

6.0

8.0

10.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Aluminium - Australia



Page | 26

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Aluminium-India



Page | 27


TABLE OF REVEALED COMPARATIVE ADVANTAGE AND COMPETITIVENESS (ALUMINIUM – CHINA)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 China Exports to World (All

Products) Xit

76,19,53,410 96,89,35,601 1,22,00,59,668 1,43,06,93,100 1,20,16,46,800 1,57,77,63,800 1,89,83,88,400 2,04,87,82,200 2,20,90,07,280 2,34,23,43,011

China Imports from World (All products)

Mit

65,99,52,762 79,14,60,868 95,61,15,448 1,13,25,62,200 1,00,55,55,200 1,39,60,01,600 1,74,33,94,900 1,81,81,99,200 1,94,99,92,315 1,95,80,21,301

China Exports to world (Aluminium)

Xij

61,09,102 92,77,266 1,15,75,029 1,42,24,671 94,98,521 1,45,30,901 1,86,48,585 1,86,41,304 2,00,39,265 2,26,15,602

China Imports from world (Aluminium)

Mij

50,11,554 61,93,593 67,45,159 68,34,935 85,40,303 87,95,536 97,72,493 95,98,255 87,02,562 80,37,604

World Total Exports (All Products)

Xnt

10,36,75,81,282 11,98,64,37,555 13,82,34,95,887 15,97,79,16,880 12,31,18,04,550 15,05,25,25,130 18,05,95,06,359 18,09,19,43,586 18,55,24,49,750 18,68,55,83,537

World Total Imports (All products)

Mnt

10,61,39,92,430 12,24,34,48,946 14,09,48,84,587 16,35,37,48,703 12,58,76,39,030 15,24,18,96,183 18,22,95,45,508 18,22,67,50,789 18,58,46,48,136 18,77,29,73,047

World Total Exports (Aluminium)

Xnj

10,42,77,019 13,77,10,628 15,73,12,584 16,36,80,121 11,23,21,679 14,65,99,129 17,34,42,009 15,93,47,403 16,48,54,812 17,28,45,415

World Total Imports (Aluminium)

Mnj

10,50,76,272 13,78,12,082 15,77,88,823 15,94,51,925 10,97,11,803 14,29,04,257 17,15,29,557 15,65,98,045 15,80,72,166 17,05,43,653

RCA1 0.059 0.067 0.074 0.087 0.085 0.099 0.108 0.117 0.122 0.131

Revealed Comparative Advantage

0.80 0.83 0.83 0.97 0.87 0.95 1.02 1.03 1.02 1.04

Trade Balance Index 0.10 0.20 0.26 0.35 0.05 0.25 0.31 0.32 0.39 0.48

Relative Trade Advantage 0.03 0.14 0.20 0.35 -0.11 0.27 0.43 0.42 0.50 0.59

Relative Competitiveness 0.06 0.18 0.26 0.37 -0.11 0.30 0.43 0.42 0.51 0.61



Page | 28


TABLE OF REVEALED COMPARATIVE ADVANTAGE AND COMPETITIVENESS (ALUMINIUM – RUSSIA)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Russia Exports to World (All Products) Xit

24,14,51,657 30,15,50,666 35,22,66,399 46,79,93,955 30,17,96,059 39,70,67,521 51,69,92,618 52,47,66,421 52,72,65,919 49,78,33,535

Russia Imports from World (All products) Mit

9,87,07,256 13,78,11,060 19,97,25,955 26,70,51,244 17,08,26,590 22,89,11,658 30,60,91,490 31,61,92,918 31,49,45,095 28,66,48,813

Russia Exports to world (Aluminium) Xij

54,71,523 70,34,198 81,47,323 86,53,406 57,91,207 66,68,975 77,39,851 72,62,288 71,24,584 63,25,357

Russia Imports from world (Aluminium) Mij

4,84,214 6,65,858 9,34,964 13,42,693 9,01,556 10,41,058 12,83,661 17,35,377 17,82,398 15,63,227


10,36,75,81,282 11,98,64,37,555 13,82,34,95,887 15,97,79,16,880 12,31,18,04,550 15,05,25,25,130 18,05,95,06,359 18,09,19,43,586 18,55,24,49,750 18,68,55,83,537


10,61,39,92,430 12,24,34,48,946 14,09,48,84,587 16,35,37,48,703 12,58,76,39,030 15,24,18,96,183 18,22,95,45,508 18,22,67,50,789 18,58,46,48,136 18,77,29,73,047


10,42,77,019 13,77,10,628 15,73,12,584 16,36,80,121 11,23,21,679 14,65,99,129 17,34,42,009 15,93,47,403 16,48,54,812 17,28,45,415


10,50,76,272 13,78,12,082 15,77,88,823 15,94,51,925 10,97,11,803 14,29,04,257 17,15,29,557 15,65,98,045 15,80,72,166 17,05,43,653

RCA1 0.052 0.051 0.052 0.053 0.052 0.045 0.045 0.046 0.043 0.037



Relative Trade Advantage 1.76 1.60 1.61 1.29 1.50 1.24 1.11 0.93 0.86 0.77

Relative Competitiveness 1.08 1.06 1.07 0.90 0.96 0.90 0.86 0.70 0.66 0.63



Page | 29


TABLE OF REVEALED COMPARATIVE ADVANTAGE AND COMPETITIVENESS (ALUMINIUM – CANADA)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Canada Exports to World (All Products) Xit

36,05,52,446 38,81,78,676 41,98,81,604 45,56,32,184 31,51,76,831 38,65,79,900 45,04,30,008 45,40,98,967 45,66,05,444 47,28,66,093

Canada Imports from World (All products)

Mit

31,44,44,419 35,02,57,150 38,06,46,622 40,87,62,168 32,12,27,568 39,21,08,702 45,05,79,509 46,23,66,181 46,17,64,140 46,20,00,049

Canada Exports to world (Aluminium) Xij

78,83,912 1,07,46,441 1,13,97,446 1,10,29,168 66,14,325 89,21,048 99,21,832 85,81,160 84,89,548 88,57,816

Canada Imports from world (Aluminium)

Mij

31,48,759 37,86,873 38,98,251 38,66,118 25,79,992 33,11,260 36,91,226 37,60,852 38,51,822 40,06,866


10,36,75,81,282 11,98,64,37,555 13,82,34,95,887 15,97,79,16,880 12,31,18,04,550 15,05,25,25,130 18,05,95,06,359 18,09,19,43,586 18,55,24,49,750 18,68,55,83,537


10,61,39,92,430 12,24,34,48,946 14,09,48,84,587 16,35,37,48,703 12,58,76,39,030 15,24,18,96,183 18,22,95,45,508 18,22,67,50,789 18,58,46,48,136 18,77,29,73,047


10,42,77,019 13,77,10,628 15,73,12,584 16,36,80,121 11,23,21,679 14,65,99,129 17,34,42,009 15,93,47,403 16,48,54,812 17,28,45,415


10,50,76,272 13,78,12,082 15,77,88,823 15,94,51,925 10,97,11,803 14,29,04,257 17,15,29,557 15,65,98,045 15,80,72,166 17,05,43,653

RCA1 0.076 0.078 0.072 0.067 0.059 0.061 0.057 0.054 0.051 0.051







Page | 30


TABLE OF REVEALED COMPARATIVE ADVANTAGE AND COMPETITIVENESS (ALUMINIUM – AUSTRALIA)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Australia Exports to World (All Products)

Xit

10,57,51,493 12,33,22,775 13,91,22,219 18,68,53,014 15,37,66,558 20,67,05,136 26,94,23,385 25,62,42,913 25,21,55,105 24,04,44,684

Australia Imports from World (All products)

Mit

11,89,21,904 13,26,50,750 15,56,56,791 20,06,17,275 15,89,41,144 18,87,40,660 23,42,05,823 25,04,64,794 23,24,81,271 22,75,44,231

Australia Exports to world (Aluminium) Xij

36,47,749 47,91,819 52,39,599 52,21,420 34,65,455 43,67,441 52,73,298 43,74,759 40,27,907 40,32,963

Australia Imports from world (Aluminium)

Mij

7,30,361 8,21,849 10,01,152 12,37,503 8,86,720 13,04,979 13,69,567 13,34,528 13,64,298 14,71,572


10,36,75,81,282 11,98,64,37,555 13,82,34,95,887 15,97,79,16,880 12,31,18,04,550 15,05,25,25,130 18,05,95,06,359 18,09,19,43,586 18,55,24,49,750 18,68,55,83,537


10,61,39,92,430 12,24,34,48,946 14,09,48,84,587 16,35,37,48,703 12,58,76,39,030 15,24,18,96,183 18,22,95,45,508 18,22,67,50,789 18,58,46,48,136 18,77,29,73,047


10,42,77,019 13,77,10,628 15,73,12,584 16,36,80,121 11,23,21,679 14,65,99,129 17,34,42,009 15,93,47,403 16,48,54,812 17,28,45,415


10,50,76,272 13,78,12,082 15,77,88,823 15,94,51,925 10,97,11,803 14,29,04,257 17,15,29,557 15,65,98,045 15,80,72,166 17,05,43,653

RCA1 0.035 0.035 0.033 0.032 0.031 0.030 0.030 0.027 0.024 0.023







Page | 31

CRITICAL ANALYSIS & INTERPRETATION:

METRIC-WISE ANALYSIS:

Revealed Comparative Advantage:

- Australia, Canada and Russia have a revealed comparative advantage,(RCA>1) while

China and India have a revealed comparative disadvantage (RCA<1).

- Australia has demonstrated the highest RCA followed by Canada and Russia.

- Although there may be other countries that may denote a better RCA, they may be

insignificant trade volume wise and so are omitted in this study. Here comparison is

made between the top five manufacturers and exporters.

- Even if china displays a RCD (Revealed Comparative Disadvantage) over the 10 Year

Average Period, A look at Annexure-A Table-2, shows that RCA is on rise since

2011. While India continues to have an RCA<1. Interestingly Russia and Australia

are on a continual declining trend with their RCA decreasing from ~ 4 in 2005 to ~2

in 2015. Canada enjoys its position consistently.

Trade Balance Index:

- Except India which is a Net Importer, all other countries i.e China, Australia, Canada

and Russia are Net Exporters of Aluminium, which means their exports are higher

than their imports.

- China is improving year on year, Canada has more or Less stable performance, While

Russian and Australian trade balance is reducing, India is significantly falling here,

Either Domestic supply is falling short or imports are cheaper or both. (Lets not draw

conclusions here that the reasons is china dumping effect….have patience and Let’s

see further). The Red Pen (TBI) is increasing only for china while its decreasing for

all others.

Relative Trade Advantage:

- This metric is similar to the trade balance index but measures the trade intensity and

thus advantage. Here again, except India all others have RTA>1 .The Supply and

Demand balance is embedded in this metric, so if domestic demand is more, a nation

may have a higher TBI but a comparative nominal RTA. As a case with china. As its

domestic demand is high, though it is a net exporter, its RTA is lower when compared

with Australia, Canada and Russia.

- Again the RTA has a decline in Russia and Australia, while its stable in Canada.

China is enjoying a growing RTA since 2010.

Relative Competitiveness:

- Many-a-times the various types of indices are not sufficient statistics for

competitiveness. The trade competitiveness inferred from actual trade flows is

inferred as revealed competitiveness and this modern metric tells whether a country

has competitive advantage or disadvantage. All the countries under study has some

form of competitiveness and their RC>0.

Page | 32

- Again all countries except china (and India) are losing their competitiveness in

international aluminium trade and on constant decline since 2009.

We note here that trade performance of all economies are on the decline since 2009 and

surprisingly Only China is on the rise since this period…. What is the reason? ? ?

COUNTRY-WISE ANALYSIS:

Australia:

- Australia displays the highest average RCA of 2.51, means it has 2.5 times its fair

share in exports/trade.

- Australia ia a net exporter and has the second highest TBI of 0.59 next to Russia

(0.72). means the (X-M) component of GDP is positive, means gains and no

Leakages.

- Australia enjoys the highest Relative Trade Advantage of 1.87, as its domestic

demand is easily met.

- Australia proves to be the country with highest Competitive advantage.

- Although Australia dominates the Aluminium market on a ten year average, It may

not hold true for future as there is a constant decline in all of the performances since

2007.A 60 % decline in overall performance is seen in the last Ten years.

Canada:

- The Canadian republic has an average RCA of 2.26 second only to Australia but

relatively more stable.

- Canada is a Net Exporter and has a positive Trade Balance Index. Again though on

slight decline, it is relatively steadier than Australia and Russia.

- Being a lower Net Exporter than Russia, The domestic demand is easily met and so

Canada has a relative trade advantage.

- Canada has demonstrated a competitive advantage in trade of aluminium, although

there is a decline in this over the past few years.

Russia:

- The Russian Federation has the third highest RCA of 1.80. The TBI, RTA and RC are

all positive.

- However it is losing its competitiveness in recent few years and steep decline along

with Australia.

- Russia is the second largest producer next to china and also a big consumer of

aluminium.

China:

- Though the average RCA for a period of 10 years is less than 1, China is catching up

steadily, since 2009 and has an RCA>1 since 2011.

Page | 33

- In spite of huge domestic consumption, China is a Net Exporter of Aluminium and

has a TBI or 0.27. As internal consumption is large, the RTA is positive but not very

high.

- After 2009 china is improving its trade performance aggressively. China facing a

challenge of economic slowdown seems to be improving on the trade metrics. But this

may not reflect the actual profits or economic rise as it may be selling aluminium at

throwaway prices in order to compensate the fall in domestic demand and may be

actually incurring losses.

India:

- India had a revealed Comparative Disadvantage (RCA<1) of 0.64 means it trades only

fifty percent of its fair share.

- Indian Domestic Consumption is increasing. The TBI of India is negative which

means India is a Net Importer. The (X-M) component of GDP is negative.

- India has its RTA close to zero or neutrality. The Supply and Demand balance is

embedded in this metric.

- The Trade competitiveness on an average is seen positive due to the performance after

2011.

- Although the trade metrics do not depict a positive picture of India in the trade of

aluminium, a focus on the latter years reveals that India has the steepest improvement

relatively to other countries, Even China.

Its Apparent from the above analysis that India is at the crest of the international aluminium

trade, we now discuss and analyse the various factors that influence this performance.

Page | 34

Discussion:

It is evident from the earlier facts and figures that there is an ever increasing demand for

aluminium in the world market. We have also seen the trends and competitiveness of leading

producer countries. In order to understand the economic factors that affect the trade

competitiveness, let us dig down.

With Demand sufficient and increasing for aluminium, the Economic Factors that determine

the trade competitiveness of producing nations are (Ore Reserves, Power, Technology &

Investments, Trade Strategies, and Fiscal Policies)

BauxiteOre:

The Bauxite reserves of the world can be referred to understand the core requirement i.e. the

Raw Material Resource.

A Pie chart from Bauxite reserves data reveals the resource distribution on the globe.

On studying various articles and journals on the Global Aluminium Industry along with the

above bauxite reserves data I have made some noting as under:

Guinea; 7.40; 24%

Australia; 6.50; 21%

Brazil; 2.60; 8%

Vietnam; 2.10;

7%

Jamica; 2.00; 6%

Indonesia; 1.00; 3%

Guyana; 0.85; 3%

China; 0.83; 3%

Greece; 0.60; 2%

India; 0.54; 2%

Russia; 0.20; 0%

USA; 0.02; 0% Rest of the World; 6.61; 21%

World Bauxite Reserves (Billion Tonnes)

Guinea

Australia

Brazil

Vietnam

Jamica

Indonesia

Guyana

China

Greece

India

Russia

USA

Rest of the World

Data Source: Data collected by Ajay Dadpe from www.statista.com (Official Data/Statistics Provider to wall street journal)

http://www.statista.com/

Page | 35

- The 12 Countries listed have over 80 % of the reserves.

- Although Guinea and Vietnam have 30 % of all the reserves, they are nowhere on the

top ten producers.

- Similarly although Russia, Canada USA and China do not have significant reserve

bases, but still they are the largest aluminium producers and a higher comparative

advantage is revealed in the RCA metrics.

- Australia has a huge ore base and surpasses its fair trade share.

So what factors gives Russia, China and USA the comparative advantage? & why do states

like Guinea, Vietnam not able to capitalise on the reserves?

Power:

Aluminium production is a Power Intense industry and a large power is consumed by the

smelting process, this means that along with bauxite ore, Power availability is also a critical

factor for mass production. Several studies for determining “Levelised Cost of Electricity”

for different fuels reveal that hydrocarbon based fuels ( Coal ,Gas ) are cheaper than Nuclear,

Hydro, Solar or other non-conventional energy sources.

An IEA newsletter article illustrated to substantiate the above:

We shall also check the coal reserves around the globe, collecting data from statista and

plotting a pie chart.

Page | 36

- Australia, China, Russia, USA, India have large coal deposits and suitable to support

smelting operations of aluminium industry.

- Given captive mines of bauxite ore, then the Power costs is the most significant cost

contributor and power costs also decide the competitiveness.

Technology, Investments and Trade Strategies:

Setting up an Aluminium industry itself is very costly. Mining, refining, Smelting and other

fabrication related processes need huge investments apart from power and other utilities.

These entry barriers coupled with technological constraints prevent competition.

Poorer and war ridden countries like Guinea, Vietnam being huge reserves are not the top

producers.

Since the early aluminium production periods, USA, Russia, China, Canada have made long

term agreements and hedging contracts with these poorer nations for mining and trade. (Big

Players like RUSAL, ALCOA, ALCAN own large bauxite mines in guinea and Vietnam.).

Bauxite is shipped out with relatively cheap royalties to these countries and Russia, Canada

and USA produce large volumes.

USA, 237.30, 26.29%

Russia, 157.01, 17.40%

China, 114.50, 12.69%

Australia, 76.40, 8.47%

India, 60.60, 6.71%

Germany, 40.70, 4.51%

Ukraine, 33.80, 3.75%

Kazakhastan, 33.60, 3.72%

Colombia, 6.70, 0.74%

Canada, 6.50, 0.72%

Rest of World, 135.37, 15.00%

World Coal Recoverable Reserves (Billion Tonnes)

Data Source: Data collected by Ajay Dadpe from www.statista.com (Official Data/Statistics Provider to wall street journal)

http://www.statista.com/

Page | 37

Some refineries and smelters are set up by the above companies in these countries. Alumina

or semi-finished aluminium are shipped by the companies to their parent nations.

Only recently these countries are realising their potential and planning to cap these resource

leaks.

Fiscal Policies:

Broadly speaking, In case of Aluminium Production in India, The Economy produces less

than its Potential resulting in a contractionary gap. So we expect government to set

Expansionary Fiscal policies to close this contractionary gap. Let’s see how.

Demand & Supply Side Economics – Changes In Government Purchases

Aluminium demand in India is high. However India’s per capita consumption of aluminium

is very low to the tune of 0.8Kgs Per Annum as compared to 4.5 Kgs Per Annum of China,

25-30 Kgs of US & Europe, 15Kgs of Japan and 10 Kgs of Taiwan.

Government’s Current objectives and targets further aid in increasing demand.

- Government. Has targeted to provide electricity to all households. (In our country the

electrical segment is the largest consumer accounting for 31 % of consumption

followed by automobile and packaging.) This shall further increase demand by 6-7

Percent.

- Infrastructure and Construction Projects are expected to cause a huge rise in demand,

to the extent of 5-6 %.

- Boost to automobile industry, defence and aeronautical sectors and manufacturing in

India agenda will further increase demand of aluminium products by 5 % minimum.

- An aggregate of 20 % rise in aluminium demand is expected in the next few years.

Referring to the Trade balance statistics as per RCA chart, it can be seen that Indian imports

surpass the exports and there is a huge domestic demand.

Clearly, here the demand management prescriptions (John Maynard Keynes approach) will

not be effective and Government needs to focus on Supply Side economics. This can be done

by Tax cuts or Providing other Production Incentives and Benefits. Ease of coal availability

at cheaper costs, Power Tariffs are also tools by with government can play on the supply side

economics.

Transfer Payments

The foreign trade policy derived from FTDR Act indicates provides framework for catalysing

exports.

- Various rebates on duties for exports. Benefits associated with Pre-Export and Post-

Export. Refund on Fringe Benefit Tax.

Page | 38

(i) PRE EXPORT : Advance Authorization (AA)/ Duty Free Import

Authorization (DFIA) Schemes for duty waivers on imports to be used in the

resultant export products , Export Promotion Capital Goods (EPCG scheme)

for duty waiver on imports of capital goods used to manufacture export

products

(ii) POST EXPORT:Drawback on imports used for exports . Post export EPCG is

also available. Certain local sales can also get duty refund on Terminal Excise

Duty and drawback on inputs. These local sales should fulfil certain conditions

under the deemed export scheme

- Duty Neutralization/ Remission/ Exemption for imports if the goods imported have an

export linkage, under certain conditions. As duties and taxes cannot be exported,

manufacturers are entitled for duty waivers/remissions on :

(i) PRIME INDIRECT TAXES & DUTIES: 1. Basic Customs Duty; 2. Excise

Duties (Additional Customs Duties); 3.Special Additional Duty (@4%)

Education Cess and Higher Education Cess.

(ii) OTHER PRIME DUTIES/CESS1. Value Added Tax (refund is given by

state government on exports) 2. Central Sales Tax (CST) (Exemption/Refund

to SEZ and EOUs only)

CHANGES IN NET TAXES:

My study on the various taxes, duties and their various forms reveal that there are two main

objectives of Taxes, Tariffs, Customs and Duties:

- Raise Government Revenue.

- Protectionism -Protection of Domestic Industries (Fair and Levelise Competition)

India is yet to overcome this internal barrier as its taxes are far more than the leading

economies of the world. Based on statistics up-to 2013 A comparison chart depicts the

historic and prevailing tax levels for countries.

http://www.britannica.com/topic/protectionism

Page | 39

Recollecting our class learnings on how expansionary fiscal policy would help, consider the

following roadmap

While USA, China Russia and Australia levy far less duties on manufacturing, India still

remains an unfavourable business spot.

Source: http://www.indexmundi.com/facts/indicators/GC.TAX.IMPT.ZS/compare#country=au

TAX: A COMPARASION

Page | 40

Here we are able to compare Indian trade atmosphere vis-à-vis other leading nations, and the

reasons for comparative trade disadvantage are self-revealing.

China on the other hand has demonstrated supremacy and literally the world on aluminium is

divided into two markets, China Vs the Rest of World.

The Chinese Hegemony:

Over the past few years, Chinese aluminium production has grown at anunprecedented rate.

While china used to produce a mere 11% of the world’s aluminium in 1999, presently it

produces more than 50 %.

This is mainly due to Fiscal policies (Discretionary policies), Artificial incentives, Subsidies

and Central Planning (Strategic Planning) by the Chinese government. This encouraged

tobuild smelters even when doing so made little economic sense. Most of the smelters built

are not low cost producers but just built to increase production levels aggressively and

capture markets. In fact, out of some 55 highest-cost aluminium smelters in the world, 40 are

in China.

Today, China’s economy has begun to slow, and less of the metal is being absorbed

domestically, and that’s why there is a severe oversupply of Chinese-produced metal. This is

again tackled in an unfair manner as Chinese producers have slashed their aluminium prices

to all time low incomparable in the industry. This oversupply and lower price is driving a

dramatic increase of imported Chinese aluminium into India and other countries. According

to CRU data, Indian imports of semi-fabricated aluminium products from China grew 80

percent in the last few years and this trend is continuing.

But this is not simply free trade at work. Chinese strategies may have provided Short term

gains but are proving to be disastrous in long term.

This oversupply is resulting in significant negative outcomes for both the Chinese and the

world economies

Firstly, this encourages illegal trade, trans-shipment, and re-melting of fabricated aluminium

products. In addition to hurting Indian producers, this practice clearly violates law and

enables firms to avoid legitimate taxes. (See infographic how some Chinese producers are

unlawfully gaming the system.)

Secondly, these unfair practices are putting Indian manufacturing jobs at risk. In India,

aluminium industry alone supports nearly 11 million direct, indirect and induced jobs and

generates $70 billion in economic impact.

Third, it has created an oversupply of metal from the most carbon intensive operations in the

world, supplanting aluminium produced in less carbon intensive regions. This creates

unneeded pollution and contributes to global greenhouse gas emissions.

http://www.aluminum.org/economy

Page | 41

MOLTEN ALUMINIUM

INGOTS

BILLETS (With Alloying)

ALLOY

Production and Fabrication

Sold on the Global Metal

Exchange (Market)

HOW THE WORLD PRODUCES

Self-Designed Infographic

Page | 42

MOLTEN ALUMINIUM

INGOTS

BILLETS (Without Alloying)

Production and Fabrication

Sold on the Global Market as

“Primary Aluminium”

(Misclassification)

HOW CHINA IS DOING IT

Shipped to Malaysia, Vietnam,

Mexico

RE-MELTING - Avoids 16 % Export Tax.

- Collect 13 % VAT Refund

- New Country of Origin

Self-Designed Infographic

Page | 43

A recent article from newspapersstated issues raised by Vedanta Chairman Sh Anil

AgarwalCEO Sh Abhijit Pati, and Hindalco CEO Sh Satish Pai :

Page | 44

PART B - ZINC

Understanding the Economics of Zinc and World Market.

Zinc is the fourth most consumed metal (After Steel, Aluminium, & Copper) and forms from

one of the three reasons i.e. Sedimentary Exhalative Deposits, Mississippi Valley Type

Deposits or Volcanogenic Massive Sulphide Deposits.

Historically even before zinc was identified as an element, in 11th century India, it was used

in the making of brass. (Copper +Zinc) and also for medical purposes. Sphalerite (Zinc

Sulphide) being the primary is widely used, although non-sulphide based ores were also used

but eventually such reserves have exhausted.

The following data from USGS shows the mineral distribution over earth.

WORLD ZINC RESERVES Country Reserves (KMT) Production

Australia 62000 1450

China 43000 3500

Peru 29000 1520

Mexico 16000 550

India 11000 750

USA 10000 720

Kazakhstan 10000 480

Canada 5900 670

Bolivia 4500 430

Ireland 1100 350

Rest of the World 42000 1580

Total (Rounded) 24000 12000

Data Gathered from : USGS Mineral Commodity

Page | 45

Trade: Zinc trade is similar to that of aluminium at the London Metal Exchange (LME) as

described in the Aluminium section of this literature.

Supply and Demand:Zinc supply has steeply fell in the past few years due to mine closures

and more demand has resulted in price rise.

- Zinc has compelling market fundamentals among the base metals.

- Significant Mine Closures are expected. A deficit of over 1MMT is forecasted for

2017

- China has increasingly imported Zinc since 2008.

Page | 46

Looking at the market data we can draw the Production Vs Price – Supply Curve &

Consumption Vs Price Level – Demand Curve. The Zinc supply and demand equation is not

a simple math. A constant rise in prices is seen while an increase in demand is also observed.

ZINC MARKET

Year Production

(KT) Consumption

(KT) Price($/T)

2010 12896 12628 1878

2011 13037 12679 1890

2012 12593 12342 1918

2013 12900 12890 1945

2014 13500 13600 2065

2015 14090 14150 2165

2016 14370 14575 2210 Source : International Lead and Zinc Study Group (ILZSG)

Page | 47

Annexure - B – Table 1

TABLE OF REVEALED COMPARATIVE ADVANTAGE AND COMPETITIVENESS (ZINC – INDIA)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Indian Exports to World (All Products) Xit

10,03,52,637 12,12,00,606 14,58,98,053 18,18,60,898 17,67,65,036 22,04,08,496 30,14,83,250 28,95,64,769 33,66,11,389 31,81,73,821

Indian Imports from World (All products) Mit

14,08,61,667 17,82,12,440 21,86,45,294 31,57,12,106 26,64,01,553 35,00,29,387 46,24,02,791 48,89,76,378 46,60,45,567 46,29,21,191

Indian Exports to world (Zinc) Xij

33,977 5,60,140 4,04,273 4,15,367 3,45,063 6,69,223 7,90,417 5,03,810 4,95,725 4,63,087

Indian Imports from world (Zinc) Mij

2,48,189 5,44,841 3,79,552 2,08,306 2,27,370 2,76,893 2,69,184 3,08,511 3,00,476 5,21,902


10,36,62,15,624 11,98,50,54,143 13,82,31,20,822 15,97,18,72,932 12,31,00,33,186 15,05,09,24,286 18,05,54,65,164 18,00,30,55,012 17,97,43,95,141 18,01,09,71,772


10,61,05,48,233 12,23,93,66,140 14,09,00,86,666 16,32,78,38,997 12,58,41,07,194 15,28,63,55,731 18,27,05,43,693 18,27,46,54,379 18,70,25,67,695 18,41,59,21,922

World Total Exports (Zinc) Xnj

88,51,451 1,91,15,729 2,21,12,607 1,28,62,442 97,06,910 1,38,44,848 1,57,69,811 1,43,41,367 1,32,43,653 1,56,96,658

World Total Imports (Zinc) Mnj

85,84,701 1,73,49,842 2,09,50,754 1,28,76,242 97,22,399 1,33,62,385 1,49,03,662 1,30,34,100 1,34,11,433 1,52,73,575

RCA1 0.004 0.029 0.018 0.032 0.036 0.048 0.050 0.035 0.037 0.030


Trade Balance Index -0.76 0.01 0.03 0.33 0.21 0.41 0.49 0.24 0.25 -0.06

Relative Trade Advantage -1.78 0.74 0.56 2.00 1.37 2.40 2.29 1.30 1.10 0.31

Relative Competitiveness #NUM! 0.76 0.20 1.10 0.87 1.22 1.21 0.84 0.74 0.31

Source : ITC Website, http://www.trademap.org/Country_SelProductCountry_TS.aspx & Balassa Index, http://www2.econ.uu.nl/users/marrewijk/research/countries/IND.htm


Source: All Highlighted figures are own calculated based on data from International Trade Centre / Trade map.

Page | 48

TOP ZINC RESERVES

Country Avg Production in Million Metric tonnes

Australia 64.00

China 43.0

Peru 24

India 11

USA 10

Source :RIETI,LME Data

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

India China Australia USA Peru

Revealed Comparative Advantage and Competitiveness - Zinc

RCA TBI RTA RC

TOP ZINC EXPORTERS

RCA TBI RTA RC

India 2.25 0.12 1.03 0.77

China 0.37 -0.49 -0.85 -1.04

Australia 5.23 0.96 5.11 1.99

USA 0.24 -0.71 -0.74 -1.37

Peru 14.58 0.98 14.38 2.77

Source : Computed Results ( Data Gathered from ITC Website Statistics Database )

Page | 49

RCA TREND COMPARISONS – ZINC

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Zinc-China



0.0

5.0

10.0

15.0

20.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Zinc-Australia



-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Zinc - USA



0.0

10.0

20.0

30.0

40.0

50.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Zinc - Peru



Page | 50

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Zinc-India



Page | 51


TABLE OF REVEALED COMPARATIVE ADVANTAGE AND COMPETITIVENESS (ZINC – CHINA)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

China Exports to World (All Products) Xit

76,19,53,410 96,89,35,601 1,22,00,59,668 1,43,06,93,100 1,20,16,46,800 1,57,77,63,800 1,89,83,88,400 2,04,87,82,200 2,20,90,07,280 2,34,28,07,785

China Imports from World (All products) Mit

65,99,52,762 79,14,60,868 95,61,15,448 1,13,25,62,200 1,00,55,55,200 1,39,60,01,600 1,74,33,94,900 1,81,81,99,200 1,94,99,92,315 1,96,20,85,985

China Exports to world (Zinc) Xij

3,82,375 14,18,409 13,46,490 3,81,302 2,30,008 2,86,211 2,89,131 1,58,320 2,33,362 5,72,652

China Imports from world (Zinc) Mij

10,05,866 15,80,253 12,34,797 8,97,285 13,77,377 12,17,760 12,76,503 14,69,475 16,71,742 16,39,563


10,36,62,15,624 11,98,50,54,143 13,82,31,20,822 15,97,18,72,932 12,31,00,33,186 15,05,09,24,286 18,05,54,65,164 18,00,30,55,012 17,97,43,95,141 18,01,09,71,772


10,61,05,48,233 12,23,93,66,140 14,09,00,86,666 16,32,78,38,997 12,58,41,07,194 15,28,63,55,731 18,27,05,43,693 18,27,46,54,379 18,70,25,67,695 18,41,59,21,922


88,51,451 1,91,15,729 2,21,12,607 1,28,62,442 97,06,910 1,38,44,848 1,57,69,811 1,43,41,367 1,32,43,653 1,56,96,658


85,84,701 1,73,49,842 2,09,50,754 1,28,76,242 97,22,399 1,33,62,385 1,49,03,662 1,30,34,100 1,34,11,433 1,52,73,575

RCA1 0.043 0.074 0.061 0.030 0.024 0.021 0.018 0.011 0.018 0.036


Trade Balance Index -0.45 -0.05 0.04 -0.40 -0.71 -0.62 -0.63 -0.81 -0.76 -0.48

Relative Trade Advantage -1.30 -0.49 -0.18 -0.67 -1.53 -0.80 -0.72 -1.04 -1.05 -0.73

Relative Competitiveness -0.45 -0.55 -0.19 -1.12 -1.20 -1.61 -1.26 -1.35 -1.40 -1.30



Page | 52


TABLE OF REVEALED COMPARATIVE ADVANTAGE AND COMPETITIVENESS (ZINC – AUSTRALIA)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Australia Exports to World (All Products)

Xit

10,57,51,493 12,33,22,775 13,91,22,219 18,68,53,014 15,37,66,558 20,67,05,136 26,94,23,385 25,62,42,913 25,21,55,105 24,04,44,684

Australia Imports from World (All products)

Mit

11,89,21,904 13,26,50,750 15,56,56,791 20,06,17,275 15,89,41,144 18,87,40,660 23,42,05,823 25,04,64,794 23,24,81,271 22,75,44,231

Australia Exports to world (Zinc) Xij

6,12,941 10,82,268 14,17,604 8,82,464 7,00,722 8,43,813 10,03,030 8,95,071 8,39,256 9,20,445

Australia Imports from world (Zinc) Mij

12,274 18,567 15,994 19,451 11,569 17,112 18,745 19,849 20,004 43,331


10,36,62,15,624 11,98,50,54,143 13,82,31,20,822 15,97,18,72,932 12,31,00,33,186 15,05,09,24,286 18,05,54,65,164 18,00,30,55,012 17,97,43,95,141 18,01,09,71,772


10,61,05,48,233 12,23,93,66,140 14,09,00,86,666 16,32,78,38,997 12,58,41,07,194 15,28,63,55,731 18,27,05,43,693 18,27,46,54,379 18,70,25,67,695 18,41,59,21,922


88,51,451 1,91,15,729 2,21,12,607 1,28,62,442 97,06,910 1,38,44,848 1,57,69,811 1,43,41,367 1,32,43,653 1,56,96,658


85,84,701 1,73,49,842 2,09,50,754 1,28,76,242 97,22,399 1,33,62,385 1,49,03,662 1,30,34,100 1,34,11,433 1,52,73,575

RCA1 0.069 0.057 0.064 0.069 0.072 0.061 0.064 0.062 0.063 0.059







Page | 53


TABLE OF REVEALED COMPARATIVE ADVANTAGE AND COMPETITIVENESS (ZINC – USA)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

USA Exports to World (All Products) Xit

90,43,39,487 1,03,70,29,245 1,16,25,38,150 1,29,98,98,877 1,05,67,12,100 1,27,80,99,187 1,48,16,82,202 1,54,49,32,014 1,57,75,87,252 1,61,97,42,864

USA Imports from World (All products) Mit

1,73,23,20,798 1,91,89,97,094 2,01,71,20,776 2,16,48,34,031 1,60,18,95,800 1,91,22,35,124 2,20,55,56,297 2,27,44,61,871 2,26,59,11,268 2,34,60,40,540

USA Exports to world (Zinc) Xij

1,58,699 2,77,380 3,24,102 2,82,541 1,86,392 2,89,233 3,23,616 3,95,246 3,22,859 4,43,107

USA Imports from world (Zinc) Mij

11,68,829 22,77,088 28,49,741 18,44,179 13,20,236 16,89,644 19,30,919 16,69,284 16,56,223 18,03,112


10,36,62,15,624 11,98,50,54,143 13,82,31,20,822 15,97,18,72,932 12,31,00,33,186 15,05,09,24,286 18,05,54,65,164 18,00,30,55,012 17,97,43,95,141 18,01,09,71,772


10,61,05,48,233 12,23,93,66,140 14,09,00,86,666 16,32,78,38,997 12,58,41,07,194 15,28,63,55,731 18,27,05,43,693 18,27,46,54,379 18,70,25,67,695 18,41,59,21,922


88,51,451 1,91,15,729 2,21,12,607 1,28,62,442 97,06,910 1,38,44,848 1,57,69,811 1,43,41,367 1,32,43,653 1,56,96,658


85,84,701 1,73,49,842 2,09,50,754 1,28,76,242 97,22,399 1,33,62,385 1,49,03,662 1,30,34,100 1,34,11,433 1,52,73,575

RCA1 0.018 0.015 0.015 0.022 0.019 0.021 0.021 0.028 0.024 0.028


Trade Balance Index -0.76 -0.78 -0.80 -0.73 -0.75 -0.71 -0.71 -0.62 -0.67 -0.61

Relative Trade Advantage -0.63 -0.67 -0.78 -0.81 -0.84 -0.76 -0.82 -0.71 -0.74 -0.61

Relative Competitiveness -0.95 -1.06 -1.49 -1.65 -1.84 -1.45 -1.72 -1.23 -1.35 -0.94



Page | 54


TABLE OF REVEALED COMPARATIVE ADVANTAGE AND COMPETITIVENESS (ZINC – PERU)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Peru Exports to World (All Products) Xit

1,71,14,289 2,37,64,897 2,80,84,585 3,12,88,212 2,67,38,260 3,52,05,068 4,56,36,085 4,59,46,180 4,18,71,689 3,84,59,251

Peru Imports from World (All products) Mit

1,25,01,830 1,53,11,559 2,03,68,278 2,99,52,803 2,18,13,514 3,00,30,471 3,77,47,092 4,22,74,274 4,33,57,295 4,21,93,570

Peru Exports to world (Zinc) Xij

2,16,085 4,69,389 4,76,359 3,49,809 2,23,895 4,05,231 6,42,358 5,62,625 6,35,535 6,33,387

Peru Imports from world (Zinc) Mij

2,195 3,241 11,412 4,378 4,288 3,138 5,585 7,088 4,194 4,377


10,36,62,15,624 11,98,50,54,143 13,82,31,20,822 15,97,18,72,932 12,31,00,33,186 15,05,09,24,286 18,05,54,65,164 18,00,30,55,012 17,97,43,95,141 18,01,09,71,772


10,61,05,48,233 12,23,93,66,140 14,09,00,86,666 16,32,78,38,997 12,58,41,07,194 15,28,63,55,731 18,27,05,43,693 18,27,46,54,379 18,70,25,67,695 18,41,59,21,922


88,51,451 1,91,15,729 2,21,12,607 1,28,62,442 97,06,910 1,38,44,848 1,57,69,811 1,43,41,367 1,32,43,653 1,56,96,658


85,84,701 1,73,49,842 2,09,50,754 1,28,76,242 97,22,399 1,33,62,385 1,49,03,662 1,30,34,100 1,34,11,433 1,52,73,575

RCA1 0.024 0.025 0.022 0.027 0.023 0.029 0.041 0.039 0.048 0.040







Page | 55

CRITICAL ANALYSIS & INTERPRETATION:

METRIC-WISE ANALYSIS:

Revealed Comparative Advantage:

- Peru exhibits the highest Revealed Comparative Advantage of 14.58, meaning it has

an advantage of 14.5 times its fair share. Australia and India too have a high RCA.

- USA and China have RCA<1, although China sits on the second largest reserves of

zinc ore. Similarly Australia has the largest reserves but does not capitalise on that.

- On a 10 Year period, the RCA of Peru and India are on the rise. While USA is more

or less constant.

Trade Balance Index:

- India, Australia and Peru are Net Exporters while USA and China are Net importers.

- China is the largest producer as well as consumer of zinc. It consumes all of its

domestic product. The primary use is galvanising.

Relative Trade Advantage:

- This is a measure of trade intensity. Peru exhibits the highest RTA as its produce

exceeds its domestic consumption.

- Australia and India also have a relative trade advantage pertaining to their net exports

over domestic consumptions.

Relative Competitiveness:

- Only Peru, Australia and India are dominant in zinc market and display competitive

advantage.

COUNTRY-WISE ANALYSIS:

Peru :

- Volcan is the largest player and Peru is the second largest producer of zinc. All the

trade metrics clearly denote industry leadership.

- There is an year on year improvement in the performance.

Australia :

- Glencore Xstrata is the biggest player in zinc, it has cut almost 4 % of worlds zinc

production and shut mines in Australia. Zinc and Lead go hand in hand and in Zinc

mining there is a potential of Lead contamination, so many countries are limiting their

productions.

- Australia performs well in all the trade metrics and has a competitive advantage.

Page | 56

China :

- Although china is the worlds largest manufacturer of zinc, it does not seem to

participate much in international zinc trade, that’s why the metrics are poor. Chinese

internal consumption for the metal is relatively high.

USA:

- During most of the 1970’s US was the largest producer of zinc and produced 50

percent of the metal. From the late 1960's to the mid-1980's, U.S. mine and smelter

output declined by 60 percent, owing to the opening of a large zinc mine in Alaska.

India:

- India is a leading zinc producer and has RCA – 2.

- The domestic demand for zinc is also high, however India is a net exporter of zinc.

Discussions:

The Domestic Consumption of zinc in china does not permit much room for exports and so

china does not reveal any significant trade advantage in-spite of its huge production levels.

India has a relatively better trade share as against china and USA. As can be observed from

the RCA table, India meets its domestic demand, this gives a good opportunity to produce

and export to China, USA where there is much demand for this metal.

Page | 57

CONCLUSION:

We have observed the market economics of Non-Ferrous metals Aluminium and Zinc. We

have also identified the market potential and the actual performance. Using Balassa indices

we analysed the global trade scenario and it’s evident that India has a lot of potential for

growth in this sector and can significantly impact its GDP.

It is observed that there is an ever increasing demand of aluminium and zinc and price

remains the determining factor for trade and in promoting investments and boosting

manufacturing.

Fiscal Policy, Environmental Regulations and Mining Policy remain the principle challenge

to overcome the trade barriers and further improve our competitiveness. There are other

reasons that affect the metal prices. The operational aspects are not considered in this study

but also key determinants of the Price.

We can categorise the reasons as Market related& Policy related

A) Market Related Factors that Influence the Aluminium and Zinc price :

- Normally in India, the metal prices are fixed on the basis of international market spot

prices and Rupee-Dollar Exchange Rate.

- Certain Economic events like global recession or slowdown, Inflation, National

Industrial growth affect the prices.

- Sometimes there are commodity specific events viz. New Production facilities

(Projects), unexpected closure of plants, Natural Disasters, industry restructuring or

other supply disruptions. These all affect the metal prices.

B) Policy related factors that influence the Aluminium and Zinc Market Price :

- Trade Policies set by the government like Implementation or suspension of various

taxes, Penalties, Duties etc. affect the supply and price.

- International events like armed conflicts between nations, and other geopolitical

events can also affect the prices and supply flows.

- The Economic growth factor also affects the demand and so the price and flow.

Page | 58

- Environmental regulations, mining permissions also affect the investment atmosphere

thus adversely affecting supply, and prices.

We can conclude that Policy related factors are mainly responsible for the revealed

comparative disadvantage that India has in the Aluminium trade and lower trade balance in

zinc trade. Also for the external threats like china dumping immediate government response

is missing. Government has to understand this business perspective and promote

manufacturing and exports. Only then Indian Aluminium and Zinc business shall flourish and

contribute more significantly to the GDP.

So how do we cope with this problem?

Ideally world trade organisation already has at place regulations that promote international

free trade and ensure a level playing field where all global producers can compete in a fair

manner and a positive trade trust is established. However different nations have their own

agendas and strategies.

Page | 59

RECOMMENDATIONS:

A series of common sense measures are suggested below to give India a comparative

advantage and competitiveness in Non Ferrous Metal trade like Aluminium and Zinc

Long Standing Import Duties: Indian Manufacturers of Aluminium are very competent and

lowest cost producers. Dumping practices even below operating prices may hamper domestic

manufacturers and lead to Unemployment. Appropriate Import Duties are to be levied on the

import of goods (Metals in our case), so that domestic manufacturers are not outcompeted.

Cracking down on Misclassifications: There is satisfying and growing evidence that some

players are deliberately misclassifying metals to evade trade duties and are unconstrained by

their government enforcements. Identification and Stern action on such players is to be done

by the DGCIS, Ministry of Commerce.

Revive and Develop Regional and International Trade Strategies: Long term Trade

Agreements with Ore Rich Nations and mutual growth strategies are to be developed. Lot to

learn from Russia, USA, Canada and China.

Simplification of Tax Structure: Right from collection of huge royalties in mining to finish

good exporting, India has a complex tax regime when compared with other leading

economies. There are nations who strategically provide export subsidies and other benefits to

export oriented business.

A need to simplify tax structure and promote manufacturing is a key to growth. While other

measures to curb china-like problems have several cross ramifications, lowering of Taxes,

Duties, Tariff’s and increase in subsidies are the best measures to uplift business and trade.

Levy Domestic Content Requirements:Cetain portion of final goods are needed to be

produced domestically.

Set Import Quotas: To have an impact on domestic market an import quota to be set below

the level that could be imported b free trade.

Anti-Dumping Duties :Anti dumping duties to be swiftly implemented, whenever such

events are observed. In the year 2012, govt set into effect its anti dumping duties on the

import of phosphoric acid from srael and tiwan.

Page | 60

Expedite Environmental Clearances to Mining and GreenfieldProjects: No other

growing economy has such regulatory complexities as in India. In the name of environment

conservation the growth should not be hampered. Faster clearances coupled with severe

penalties for violators is a win-win strategy.

Page | 61

References:

Articles:

- Balassa, B. (1965), “Trade Liberalisation and ‘Revealed’ Comparative Advantage”,

The Manchester School, 99-123.

- Balassa, B. (1977), “’Revealed’ Comparative Advantage Revisited”, The Manchester

School, 327

- Vollrath, T.L. (1991), “A Theoretical Evaluation of Alternative Trade Intensity

Measures of Revealed Comparative Advantage Page – 268

- The Global Aluminium Industry 40 years from 1972: Dr Carmine Nappi Feb 2013

- Future of Aluminium Industry in India,a Thesis by Saswat Satchidananda NIT

Rourkela.

Databases and Websites:

- FAOSTAT Database

- ITC Website, http://www.trademap.org/Country_SelProductCountry_TS.aspx &

- Balassa Index, http://www2.econ.uu.nl/users/marrewijk/research/countries/IND.htm

- Directorate General of Commercial Intelligence and Statistics. www.dgciskol.nic.in

Textbooks:

- ECON : Principles of Macroeconomics; Chapter 18, 358-379

http://www2.econ.uu.nl/users/marrewijk/research/countries/IND.htm

http://www.dgciskol.nic.in/

A Study on India's Revealed Comparative Advantage in Non-Ferrors Metal Trade-Ajay Dadpe

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