Aluminium

Multi Commodity Exchange of India Ltd. (MCX) is an independent and de-mutualized exchange with permanent recognition
from the Government of India. MCX offers futures trading in over 65 commodities including key segments such as bullion,
energy, grains, plastics, metals, oil and oilseed, fibers, spices, pulses, sugar, and plantations. With over 72% domestic
market share, MCX has an average daily turnover of US $2.15 billion.

INTRODUCTION
= Aluminium is the third most abundant element found in the earth's crust. It exists in very stable
combinations with other materials particularly silicates and oxides.
= Aluminium is lightweight and weighs only one third as compared to copper; while its density is only one
third that of steel.
= It is resistant to common atmospheric gases and a wide range of liquids. Hence, aluminium is known for
its durability and high resale value.
= It has high reflectivity and therefore has more decorative uses.
= Besides a good conductor of heat and electricity, aluminium also keeps its toughness down to very low
temperature without becoming brittle like carbon steels. So, it is easily worked and molded.

APPLICATIONS
Aluminium is widely used in the construction, transportation, and packaging industries. Its attributes are
ideal for the construction business. The metal is strong, light, corrosion resistant, and versatile. It is used in
constructing windows, doors, cladding, weather–proofing, and in light constructions such as conservatories
and canopies. In the transportation industry, aluminium is used in the auto, aerospace, railways, and marine
industries. Its strength, lightness, and resistance to corrosion are ideally suited for the construction of the
shell and bodies as well as in working parts, fixtures, fittings, and engine components. In aircraft, aluminium
and aluminium alloys account for around 80% of the unladen weight. In auto production, aluminium is
gaining market share from steel.
In the packaging industry, aluminium is used extensively for the protection, storage, and preparation of food
With a growing and drinks. It can also be easily recycled, which makes it an environment-friendly packaging material.
Aluminium is used in overhead and underground power lines and power cables.
market share of
72%, MCX DEMAND AND SUPPLY
Aluminium is the largest base metal consumed annually. It benefits the rapid industrialization and
continues to be urbanization of developing countries like China and India. The aluminium demand is set to accelerate
sharply. The primary aluminium demand has risen from 2 million tonnes in 1950 to 9.5 million tonnes in
India's No. 1 1970, and then 15 million tonnes in 1990, which is expected to rise to 35 million tonnes in 2007.
commodity There are three stages of production of primary aluminium. It starts with the mining of bauxite, a reddish
brown aluminous earth found in tropical latitudes in Australia, South America, India, the Caribbean, and
exchange. Africa. Bauxite is then refined to produce alumina, which is then smelted to produce aluminium. To produce
one tonne of primary aluminium, we need two tonnes of alumina, which in turn takes about four tonnes of
bauxite.
The reduction of aluminium from its oxide, alumina is very power-intensive, which is why the significant world
primary aluminium production is located near cheap energy sources, whether it be hydroelectric power in
Canada or oil and gas fields in the Middle East. It is important to understand the huge energy requirement
to produce primary aluminium. The Hillside smelter in South Africa produces around 460,000 tpy of
aluminium, but to do so it consumes about 5% of all the electricity consumed in South Africa.

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 World Aluminium Consumption

35,000 Africa

Oceania
Consumption (in MT)

30,000

25,000 India

20,000 Latin America

15,000 East/Central Europe

10,000 Rest of Asia (2)
5,000 Western Europe
0 North America
2003 2004 2005 2006 (E)
China
Year

Source: Brook Hunt, September 2006

(E) = Estimated
(2) = Rest of Asia is Asia excluding China and India but including the Middle East

Globally, MCX
World Aluminium Production
ranks No. 1 in
silver, No. 2 in 35,000 India
natural gas, and 30,000 Africa
Production (in MT)

No. 3 in crude 25,000 Oceania

oil and gold in 20,000

Latin America
Rest of Asia (2)
futures trading. 15,000
Western Europe
10,000
East/Central Europe
5,000
North America
0
2006 (E) China
2003 2004 2005
Year

Source: Brook Hunt, September 2006

(E) = Estimated.
(2) = Rest of Asia is Asia excluding China and India but including the Middle East.

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 FACTORS INFLUENCING THE MARKET
The production of aluminium requires alumina and uninterrupted supply of electricity. However, in recent
years there have been a host of issues, which have affected aluminium supply; most important of these is
electricity. In 2001, energy shortages in the US resulted in electricity prices spiraling higher to the extent
that it was more profitable for some aluminium smelters to stop producing aluminium and to sell their
electricity quotas to other users. So at peak energy usage times, such as during the summer when air
conditioning consumes huge amounts of energy, aluminium smelters sometimes have to cut production to
release electricity for other users.
The following are some other factors that can influence the aluminium market:

= Changes in inventory stocks at LME, SHFE, COMEX, and TOCOM warehouses

= World aluminium mine production through exploration of new mines and expansion of existing mines
= Economic growth of major consuming nations such as China, Japan, Germany, etc.
= Growth and demand in the construction, packaging, and transportation industry

LME Aluminium Three Months Price vs Global Inventories

3,500 9,00,000

8,00,000
3,000
7,00,000
2,500
Price (in $/MT)

Stocks (in MT)

6,00,000

2,000
MCX has 10 5,00,000

4,00,000
strategic 1,500

3,00,000
alliances with 1,000
2,00,000
leading 500
1,00,000
commodity 0 0
Nov-05

Nov-06
May-06
J an-06
Jul-05

Jan-07
Sep-06
Jul-06
Jan-05

Mar-06
Sep-05
May-05
Mar-05

Mar-07

exchanges
across the globe.
LME Stock SHFE Stock COMEX Stock LME 3M

Source: Bloomberg

GLOBAL SCENARIO
Aluminium ores (most commonly, bauxite) are in abundance and found mainly in tropical and subtropical
areas of Africa, West Indies, South America, and Australia. Some deposits are also found in Europe. The
leading aluminium producing countries include the United States of America, Russia, Canada, the European
Union, China, Australia, Brazil, Norway, South Africa, Venezuela, the Gulf countries (Bahrain and the United
Arab Emirates), India, and New Zealand. These countries together represent more than 90% of the global
primary aluminium production.

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 INDIAN SCENARIO
India is the fifth largest producer of aluminium in the world. India produces approximately 3,037 million
tonnes of all categories of bauxite.
At current levels of consumption, the existing reserves will have an estimated life of over 350 years. India's
reserves are estimated to be 7.5% of the global deposits, and the installed capacity is about 3% globally. In
terms of demand and supply, India is self sufficient and has a competitive export potential. India's annual
export of aluminium is about 82,000 tonnes. India's annual consumption of aluminium is around 0.61
million tonnes and is projected to increase to 0.78 million tonnes during 2007. The primary Indian
aluminium producers include NALCO, HINDALCO, and Vedanta Group.
Aluminium prices in India are fixed on the basis of the prices prevailing on LME.

IMPORTANT GLOBAL EXCHANGES

Exchange Product Lot Size IST

LME HG Aluminum 25 MT 17:20 p.m. to 22:30 p.m. (Winter) *

16:20 p.m. to 21:30 p.m. (Summer) *

Shanghai Futures Aluminum 5 MT 06:30 a.m. to 12:30 p.m.

Exchange (SHFE)

COMEX Aluminum 40,000 pound 18:20 p.m. to 23:45 p.m. (Winter)

17:20 p.m. to 22:45 p.m. (Summer)

MCX Aluminum 2 MT 10:00 a.m. to 23:55 p.m. (Winter)

10:00 a.m. to 23:30 p.m. (Summer)

TOCOM Aluminum 10 MT 05:30 a.m. to 12:00 p.m.

* LME Ring & Kerb timings only.

The average (Start time - Ring session, End time - Kerb trading)

daily turnover of
MCX is about
US $2.15 billion.

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 Correlation MCX Near Month & LME Cash
3,400 160

3,200 150

Price (In Rs/KG)

Price (In $/MT)
3,000
140
2,800
130
2,600
120
2,400

2,200 110

2,000 Mar-06 100

May-06

Dec-06
Sep-06
Feb-06

Oct-06

Nov-06
Jan-06

Apr-06

Jul-06
Jun-06

Jan-07
Aug-06
Period
Correlation : 92.19% LME MCX

Source: Bloomberg

MCX Aluminum Volume & Open Interest

150 9,000
145 8,000

Volume (In '000 kg)

140 7,000
Price (In Rs/kg)

135 6,000
130
5,000
125
4,000
120
MCX now 115
3,000
2,000
reaches out to 110
105 1,000
about 500 cities 100 0
Jan-07
Jan-06

Feb-06

Mar-06

Apr-06

May-06

Jun-06

Jul-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

in India with the

help of about Period
Volume (kg) Open Interest (kg) Price
10,000 trading Source: Bloomberg

terminals.
IMPORTANT WEB SITES
www.alunet.net
www.aluminum.org
www.metalbulletin.com
www.basemetals.com
www.international.standardbank.com
www.barx.com
www.futuresource.com
www.metalsmarket.net
www.metalsplace.com
www.metalprices.com
www.gfms-metalsconsulting.com
www.brookhunt.com
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 CONTRACT SPECIFICATION OF ALUMINIUM

SYMBOL ALUMINIUM
Description ALUMINIUM MMMYY
Trading period Monday to Saturday
Trading session Monday to Friday: 10:00 a.m. to 23:55 p.m. (Winter)
Monday to Friday: 10:00 a.m. to 23:30 p.m. (Summer)
Saturday: 10:00 a.m. to 14:00 p.m.
Contract months Monthly contracts
Expiry date Last day of the Contract
Trading unit 2 MT
Quotation/base value Rs. per kg
Tick size 5 paise
Daily price limit 4%
Initial margin 5%
Special margin In case of additional volatility, a special margin of such
percentage (as deemed fit) will be imposed immediately on both
MCX COMDEX is buy-side and sell-side in respect of all outstanding positions,
which will remain in force for next two days. After which, the
India's first and special margin will be relaxed.

only composite Maximum allowable

open position
For individual clients: 13,000 MT
For a member collectively for all clients: Not more than 25% of
commodity the market-wide open position in a contract at any point of time
Delivery logic Both options
futures price Delivery center Exchange designated warehouse at Bhiwandi
index. Delivery unit 10 MT with tolerance limit of +/– 0.5% (50 kg)
Due date rate DDR is calculated on the last day of the contract expiry,
calculation by taking average of LME Official Cash closing prices
(i.e. Mid value of Bid and Ask) of Aluminium and it would be
multipled by Rupees-US$ rate as notified by the Reserve Bank of
India on that particular day.

Note: Please refer to the exchange circulars for the latest contract specifications and delivery and
settlement procedures.

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05/2007

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of this publication. MCX or any of its affiliates makes no warranties as to the accuracy of information, or results, to be obtained from its use.

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