Balco. Vicky. Project Optimation of Product Mix

7/31/2019 Balco. Vicky. Project Optimation of Product Mix

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Annexure- A

Summer Internship Project Report

On

OPTIMIZATION OF PRODUCT MIX

Submitted in partial fulfillment of the requirements for the Two Year Full

Time Post Graduate Diploma in Management

By: Under the Guidance of

Student Name: 1. Faculty Mentor: - Prof. Neha Zaidi

Vicky Kumar Prajapati I.T.S- IM

Enrollment No: 13163 2. Industry Mentor: Mr.V.sriram

Batch: 2011-13 Designation: Manager central

Marketing Balco Korba C.G

I.T.S- Institute of Management

Greater Noida2011-13


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TABLE OF CONTENTS

i.

ii.

iii

iv

1.

1.1

1.2

1.3

1.4

2.

3.

4.

5.

6.

7.

8.

Internship Certificate

Authorization

Acknowledgement

Executive Summary

Introduction

Background

Objective

Methodology

Scope & Limitations

Economy Industry Analysis

Company Analysis

Project Specific Analysis

Conclusion & Recommendation

Outcome

Learning from SIP

References

PAGE

3

4

5

6

7

7

8

8

9

10

25

45

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Annexure B

CERTIFICATE OF ORIGINALITY

I hereby declare that this Summer Internship Project is my own work

and that, to the best of my knowledge and belief, it reproduces no

material previously published or written that has been accepted for the

award of any other degree of diploma, except where due

acknowledgement has been made in the text.

(Vicky Kumar Prajapati)

Enrollment No. 13163

Date:


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ACKNOWLEDGEMENT

First of all I would like to thank the Management of the organization Bharat Aluminium

Company Ltd. (BALCO) for providing me the chance to undertake this internship study and

allowing me to explore the area of Marketing which I am sure will prove to be very beneficial

for me in my future assignments and my career ahead.

I am highly indebted to Mr.V.Sriram, Manager, Marketing, Balco, for his guidance and

constant supervision as well as for providing necessary information regarding the project and

also Mr. K. Karmakar, Head, Marketing, Balco, for his support and guidance in completing the

project.

I would also like to thank other executives of Bharat Aluminium Company Ltd. (BALCO) who

have provided help and given their suggestions to make this Project a success.

I am deeply grateful, to my faculty guide Prof. Neha zaidi for his invaluable support

throughout the internship. I truly appreciate the kind understanding I received all along .


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EXECUTIVE SUMMARY

Major driver for growth in aluminum industry in India is economic boom and growth in per

capita income. Bharat Aluminium Company Ltd. enjoys a leadership position in manufacturing

of primary and semi finished aluminium products in India. The companys aluminium unit

encompasses the entire gamut of operations from bauxite mining, aluminium smelting to

downstream wire drawing and rolling, along with the captive power plants. The company has

significant market share in the entire segment in which it operates.

As a step towards expanding the market for value added products it has undertaken an

ambitious expansion plan. In this expansion plan huge investment is being made for production

of additional 3.5 lakh tons of molten aluminium. As the total production capacity will become 6

lakh Tons per annum additional Furnaces, Rod Mills and Ingot casting machines are being

installed to handle the additional molten metal. For maximizing the profit of the Company it is

essential that the Product Mix after the capacity expansion is optimized.

The Project was undertaken to optimize the Product Mix so that the profit of the Company is

maximized. The existing and upcoming production capacities of the various products were

studied in details. Correspondence with the Regional Marketing Offices was carried out to find

out the Customer demands of the products in various regions. After studying the demand

growth in various sectors Forecasting was done. Then Solver of MS-Excel was used to new

Product Mix was recommended.


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1. INTRODUCTION:

Globally, newer packaging applications and increased usage in automobiles is expected to keep

the demand growth for aluminium over 5% in the long-term. Asia will continue to be the high

consumption growth area led by China, which has been and is expected to continue to register

double-digit growth rates in aluminium consumption in the medium-term. With key consuming

industries forming part of the domestic core sector, the aluminium industry is sensitive to

fluctuations in performance of the economy. Power, infrastructure and transportation account

for almost 3/4th of domestic aluminium consumption. With the government focusing towardsattaining GDP growth rates above 8%, the key consuming industries are likely to lead the way,

which could positively impact aluminium consumption. Domestic demand growth is estimated

to average in the region of over 8% over the longer-term. Lowering of duties reduces the net

tariff protection for domestic aluminium producers. Aluminium imports are currently subject to

a customs duty of 5% and an additional surcharge of 3% of the customs duty. The customs duty

has been reduced in a series of steps from 15% in 2003 to 5% in January 2007. With reduction

in import duties, domestic realization of aluminium majors, namely Balco, Hindalco and Nalco,

are under pressure, as the buffer on international prices is reduced. Moreover, with greater

linkage to international prices, volatility in financials could increase. However, producers are

moving downstream to negate the higher volatility.

1.1. Background:


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The per capita consumption of aluminium in India is only 1.8 kg as against 25 kg. in USA,

19kg. in Japan and 10 kg. in Europe. Even the Worlds average per capita consumption is about

10 times of that in India. One reason of such low consumption in the country is that the

consumption pattern of aluminium in India is vastly different from that of developed countries.

The demand of aluminium is expected to grow by about 9 percent per annum from present

consumption levels.

Features of Indian Aluminium Industry:

1. Highly concentrated industry with only five primary plants in the country

2. Controlled by two private groups and one public sector unit

3. Bayer-Hall-Heroult technology used by all producers

4. Electricity, coal and furnace oil are primary energy inputs

5. All plants have their own captive power units for cheaper and un-interrupted power

supply

6. Energy cost is 40% of manufacturing cost for metal and 30% for rolled products

This sector is going through a consolidation phase and existing producers are in the process of

enhancing their production capacity so that a demand supply gap expected in future is bridged.

Balco is also going to enhance its aluminium production capacity from 2.5 lakh Tons/annum to

6 lakh Tons/annum. In this context it is essential that the product mix of the company should be

optimized.

1.2. Objective:

The objective is to develop an optimum product mix for the company after capacity expansion.

This will result in maximization of the total profit earned by the company. The aim is to

maximize the production of products having high Net Sales Realization.

1.3. Methodology:


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1) Studying the already existing manufacturing process and products in detail

2) Studying the new plant, the equipments, the operations and the capacity in detail

3) Interacting with the sales regions to find out the existing demand, future market growth

potential and to find out their expectations from the new plant.

4) Collecting data

5) Analyzing data

6) Optimizing the product mix.

1.4. Scope & Limitations:

The scope of the project is to optimize the product mix of Balco only. This includes collecting

and analyzing data related to present and future production capacity, the present product mix of

Bharat Aluminium Company Ltd. and the sector wise market demand for various products.


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2.ECONOMY-ALUMINIUMINDUSTRYANALYSIS

2.1. GLOBAL SCENARIO

Aluminum represents the second largest metals market in the world. Growing demand for the

lightweight metal is fuelled largely by the booming Chinese economy which already consumes

a quarter of the worlds aluminium production. Analysts predict an annual growth rate of 7 to

14% in the Chinese automotive industry up to 2011, a 12% increase in construction expenditure

in 2007 and a minimum of plus 16 million annual growth in urban population during the next 8

years. According to analysts these factors will combine to see China consume 36% of worlds

aluminium production as early as 2010.In addition, the EU is discussing the possibility of

introducing stricter CO2 emission requirements for automobiles which will inevitably boost

demand for aluminium. Aluminium is lighter than steel, so its wider use in the automotive

industry will make cars much more efficient. A kilo of aluminium, used as a substitute for

heavier metals in car industry, reduces gas consumption by 8.5 litres and produces 20 kg less

CO2 emissions. A 10% reduction of car weight results in a 9% increase of fuel consumption

efficiency.Finally, rising prices for substitute metals, such as zinc and copper, stimulate a direct

increase of demand for aluminium in the power, transportation and construction sectors in

particular.Demand is enormous, consumers are wealthy, profitability is evident: it seems a lot

of companies should be rushing to enter the aluminium sector, yet, the situation is not as simple

as it may seem. Only those who can establish and manage the full production cycle (from the


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extraction of raw materials, the production of alumina, and the reduction of aluminium) in a

highly efficient way can become leaders in the aluminium industry.Whoever owns resources

owns the world.Resources of bauxites, the raw material for aluminium, are not widespread

throughout the world. There are only seven bauxite-rich areas: Western and Central Africa

(mostly, Guinea), South America (Brazil, Venezuela, Suriname), the Caribbean (Jamaica),

Oceania and Southern Asia (Australia, India), China, the Mediterranean (Greece, Turkey) and

the Urals (Russia). The main deposits of high-quality bauxites with high aluminium content

(not less than 50%), are already divided by the main players. Other companies have to either

buy alumina on the free-market and wholly depend on price movements or join forces

with deposit owners.

The richest sources of bauxite belong to the United Company RUSAL (UC RUSAL), which

was established in 2007 as a result of a merger between RUSAL, SUAL and the alumina assets

of Glencore (3.3 bln m.t. of bauxites), and to the mining and metallurgical giants: Rio Tinto

(3.29 bln. M.t.), and CVRD (2.73 bln. M.t.). Chalco of China comes fourth with its 1.92 bln.

M.t. Alcoa and Alcan, which are among the three largest producers, control deposits worth 1.89


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and 0.38 bln. M.t. respectively.These same companies make up the ten largest manufacturers of

alumina. Analysts estimate that Alcoa World Alumina and Chemicals (Alcoas alumina

business, with 60% belonging to the American company and 40% to the Australian Alumina

Limited) will produce 19% of the worlds total alumina production in 2007, UC RUSAL will

produce slightly over 14%, Chalco will produce 12%, Alcan will produce 8%, Rio Tinto will

produce 4% and CVRD 3%. BHP Billiton (2007 estimate is 6%) and Norwegian Hydro

Aluminium (3%) are also among the leaders of alumina production.The limited supply of raw

materials is a factor behind the major consolidation trend of world aluminium industry. In 2007

the merger of RUSAL, SUAL and alumina assets of Glencore was completed. Rio Tinto

proposed to take over Alcan, which, in turn, has already taken over the French aluminium

manufacturer Pechiney in 2004. The US-based Alcoa is also named by the press as a potential

mergerand takeover participant. According to analysts, the Chinese aluminium industry is on

the verge of changes: small manufacturers (amounting to more than a hundred in China), will

either merger with each other, or join Chalco.

The Big Ten of the world

Today the Big Ten aluminium manufacturers of the world are:


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United Company RUSAL is the leader of the worlds aluminium industry. Its products are

exported to clients in 70 countries of the world. The Company incorporates bauxite and

nepheline ore producers, manufacturers of alumina, aluminium, alloys, foil and packaging

materials, as well as power assets. The United Company holds 12.5% of the worlds aluminium

market and 16% of the worlds alumina market, which allows the company to produce 3.9

mlllion m.t. of aluminium and 10.6 mln m.t. of alumina per annum. The company was

established in March 2007, as a result of merger of RUSAL, SUAL and alumina assets of

Glencore. UC RUSAL provides employment for 100,000 individuals and is operating in 17

countries on 5 continents.Alcoa is one of the worlds leading manufacturers of primary

aluminium, aluminium products and alumina. The company is involved in aerospace,

automotive, packing and construction industries, as well as in the field of commercial

transportation and engineering solutions. Alcoa has 129,000 employees in 44 countries of the

world. In 2006 the company has produced 3.55 mln m.t. of primary aluminium. In Russia,

Alcoa owns OJSC Samara Metallurgical Plant and OJSC Belaya Kalitva Metallurgical

Industrial Amalgamation.

Chalcoor Aluminium Corporation of China Limited is the largest manufacturer of aluminium

in China and the only manufacturer of alumina in China. The company was founded in 2001

during the privatization of Chinese aluminium industry. In 2011 Chalco has produced 9.2 mln

m.t. of alumina and 1.6 mln. M.t. of aluminium. All the assets of the company 4 plants,

manufacturing both alumina and aluminium, one purely aluminium and two purely alumina

plants, plus, an R&D Institute are located in China. Chalco does not have representation in

Russia.

Hydro Aluminium is one of the two main business units of Norsk Hydro. Its second line of

business is the oil and power industry. Hydro Aluminium is a downstream-integrated company

with major alumina assets in Brazil and Jamaica, and aluminium smelters in Australia, Canada,

Germany, Norway and Slovakia. The company has also announced its intention to build an

aluminium smelter in Russia. Hydro Aluminium has 26,000 employees. In 2006 they have

produced 1.8 mln m.t. of primary aluminium. At present, Hydro has offices in Moscow and

Saint Petersburg.


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BHP Billiton is the largest mining company in the world. The company acquired its present

configuration in 2001, when it was created through the merger of the Australian Broken Hill

Proprietary Company (BHP) and the British listed Billiton. Aluminium production is just one

of ten businesses run by this Australian giant. As of today, overall production capacities of the

company are over 1 mln m.t. of aluminium and over 4 mln m.t. of alumina per annum. BHP

Billiton owns industrial sites in South Africa, Australia and South America. BHP Billiton does

not have a representation in Russia.

Dubal or Dubai Aluminium is the largest aluminium manufacturer in the UAE. Starting in

1979 with a single pot line, producing only 136,000 m.t.p.a., Dubal today is one of the leaders

of world aluminium industry, having production capacity of 900,000 m.t.p.a. of aluminium.3240 people work for the company. The main markets for Dubal are: the Far East, Europe,

Asia, the Middle East, the Mediterranean and North America. Dubal does not have

representation in Russia.

Rio Tinto Group is another diversified mining company among the top ten aluminium

producers in the world. It got its present configuration in 1997 after a series of takeovers and

mergers. Aluminium production is one of the groups seven lines of business. Rio Tinto

Aluminium mines bauxites, produces alumina and primary aluminium, accounting for 26% of

all aluminium, manufactured in Australia. The head-office of its aluminium operation is located

in Brisbane, Australia, with representations in New Zealand, Australia and Great Britain. Rio

Tinto Aluminium employs 5,000 people. Rio Tinto has recently taken over lcan, which is

over 100 years old Canadian aluminium manufacturer. Today, the company is one of the

leaders in the worlds aluminium industry, producing bauxites, alumina and aluminium. It is

one of the three largest manufacturers of structural and packaging materials. Its production

volume for primary aluminium in 2006 was 3.4 mln m.t. The company has 68,000 employees,

including joint ventures. Alcan operates in 61 countries. In Russia, Alcan sells aluminium

packaging materials, including products for the tobacco and cosmetics industries. It has

representative offices in Moscow and Leningrad regions. The new company has become the

absolute leader in terms of volume.

Aluminium Bahrain B.S.C. or Alba is one of the largest aluminium smelters in the world.

Since it was built in 1971 in the Knaff District of Bahrain, the smelter has increased its


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production capacity from 144K to 850K m.t.p.a. of aluminium, thus entering the Big Ten

aluminium manufacturers and becoming the worlds third largest aluminium smelter. In 2006

Alba has produced 2.3% of the worlds aluminium.

Century Aluminumwas founded by the Swiss company Glencore International, as a holding

for its aluminium assets, in 1995. A year later Glencore completed an IPO of Century

Aluminium stock, leaving a 30% package. The company employs 1,750 people. It controls or

holds shares of several aluminium smelters in the US and Iceland, as well as a number of

mining assets in Jamaica and in the US. Last year, Century Aluminium produced 660K m.t. of

aluminium, which accounts for 1.9% of the worlds production. Its head-office is located in

Monterey, CA. Century Aluminium has no representation in Russia.

The Power of Success

The reduction of aluminium from alumina by means of electrolysis is a power-consuming

process, hence most vertically integrated companies are generating their own power.

Accessibility and the price of power drives the second trend of aluminium industry

development. Aluminium production leaves industrially developed countries and shifts to

countries that are reach in resources and able to produce their own cheap energy.

Thus, in the last 18 months, growing power rates, lack of local resources and a tightening of

ecological regulations have resulted in the shut-down or closing of European production

facilities manufacturing a total of 354,000 m.t.p.a of aluminium. In the next year and a half, 3

more plants will be closed in Europe, with a total production capacity of 206,000 m.t.p.a.

At the same time, countries like India, Iceland, China, Russia, and UAE enjoy growth and

development of aluminium production. Analysts believe that in the next four years each of

these countries will increase overall production capacity by at least 500K m.t.p.a. China will be

the absolute champion, adding a total of 7.6 mln. M.t.p.a. of aluminium production capacities

by 2011.

Aluminium has been used for for just over 150 years, yet it has already gone from being purely

decorative, used by jewelers alone, to being a material which allows us to travel faster, live

more comfortably, use all the advantages of progress and study the worlds around us. The

corporate history of aluminium production is an interesting story. Companies which were


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considered world leaders merely five years ago have become divisions of larger competitors,

while plants that started as pilot shops for manufacturing aluminium have become the largest

manufacturers of the flying metal. And this is just the beginning!

2.2. OUTLOOK OF THE ALUMINIUM INDUSTRY

Aluminum prices averaged around US$2,530/t in first eight months of 2011 but with a slight

downward trend since May 2011. The heavy sell-off in late September gave a beating to the

aluminum prices which went below US$2,200/t for the first time in 12 months and averaged

US$2,171 in October before slipping below US$2,000 in November. The reasons for the drop

in prices were a reflection of deepening fears of recession in US and uncertainties of Eurozone

market and looks more like been sentimentally driven rather than by traditional supply anddemand factors.


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Fig

ure 1: Aluminum prices over years

Accordingly the average price for Aluminum is expected to settle at US$2,420/t for full year

2011. Average price for 2012 is expected to fall down to US$2,300/t in response to the gloomy

economic outlook. Growth in production levels in China, the Middle East and the United States

is expected to outpace the growth expected from the consumption side. As per EIUs World

Commodity Forecasts, 2013 would have improved global demand and higher production costs

which will provide support for higher aluminum prices. Thus the average price is expected to

be around US$2,380/t.


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Figure 2: Aluminum price forecasts

Figure 3: Aluminum production history

It is generally said that 4 tons of bauxite is required to get 2 tons of Alumina which in turn will

result in 1 ton of Aluminum. Figure 3 throws more light on what has been happening

historically.


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China saw an expansion of 25.6% in aluminum production in 2010. A number of smelter

expansions and new projects are scheduled to be completed in 2011 and 2012. But at the same

time, the production may be hampered by the government policies aimed at shutting down

inefficient, energy intensive operations. Chinese government are also limiting future approvals

for new projects as it has committed to lower energy usage by 16% in 2015 from 2010 levels.

Thus the production is expected to grow albeit at a slow pace as compared to 2010. Thus the

output for 2011 is expected to reach ~17.3Mt (Actual production till November 2011 was

16.3Mt) at 7% growth rate and further the growth rate is expected to decline to ~3% for 2012,

2013.

Russian production increased by only 1.2% year on year basis in January-September 2011. But

with Brownfield and Greenfield expansions, in the form of Boguchansk energy and metals

complex (BEMO) and Taishet smelter respectively by UC Rusal, progressing on time, the

output is expected to grow at a faster rate in the coming years. Accordingly aluminum output is

expected to grow by ~4% a year in 2012-13.

Production remained strong in Middle East throughout 2011 with output growth expected to

cross 8% for the year. With recently commissioned Qatalum smelter (Norsk Hydro and Qatar


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Aluminum) reaching its full capacity of 585kt and Maadens Ras As Zawr and Emirates

Aluminiums aluminum complex well on progress, the aluminum production growth rate is

expected to sustain over next few years.

Growth in Aluminum consumption in the near future is expected to be largely supported by

consumption growth in emerging economies. Growth in transportation, infrastructure, housing

construction activity and demand for packaging applications is expected to drive the growth in

these economies.

Chinese 2010 consumption saw an increase of 10.5% to 15.8Mt. As per EIU, the corresponding

figure is expected to be around 6.7% for 2011; BREE expects it to be at 17% whereas Alcoa

expects it to be at 15%. The growth is expected to be supported by residential and non

residential property construction, expansion of countrys high speed rail infrastructure and

electricity transmission network construction. The growth in 2012-13 is expected to lower

down a bit at around 6% a year with support coming from manufacture of aluminum intensive

products for both domestic and export markets.

European Union growth was robust for the first nine months of 2011 standing at 8.9% year on

year basis. It was majorly because of expansion in Germanys automotive sector. But the full

year growth rate is expected to clock 7% with consumer and business confidence hit badly by

the Eurozone crisis. The growth is expected to slow down to 0.5% in 2012 constrained by weak

GDP growth outlook and fiscal tightening.

According to EIU, Indias consumption for January to September 2011 rose 7.4% year on year

basis but due to a slowdown in the car production in the recent months, the full year growth is

expected to reduce to 6.8%. But with commencing of Indians 12th five-year plan, the

Government is planning to invest heavily in the countrys urbanization and infrastructuredevelopment. At the same time, car production growth is also expected to continue albeit at a

slower pace. With large scale investment expected in energy and infrastructure, the growth in

Indias consumption is expected to range between 9-10% a year in 2012-13.

With Football world cup in 2014 and the Olympic Games in 2016, Brazil looks like a growth

story to be told. The consumption increased by an estimated 11.7% in 2011 and it is expected

to be fuelled further by rapid growth in car ownership along with the construction boom ahead


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of the events. There would be a curb on the demand because of the slowness in the economy

seen in the recent months, but the growth, as per EIU, is expected to average more than 15% a

year in 2012-13.

Aluminum has a diverse range of end uses which can be highlighted by Figure 6 below. But at

the same time Transport and construction activity consumed 49% of aluminum in 2010 and

they are expected to drive the future demand as well with stable demand from other activities.

Key developments Ownership changesIn the fourth quarter of 2011, no deal was announced in

the aluminum industry and there was no deal in the corresponding quarter last year as well, as

can be seen from Figure 7. Number of deals announced in the fourth quarter of 2011 decreased

from one to zero as against the third quarter.


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2.3. ALUMINIUM SCENARIO IN INDIA

The global economy has withstood the recession though its recovery has been rather sluggish.

World growth decelerated to nearly 3.8% during the second half of 2010 from 5.3% during the

first half. The IMF forecasts a 4.3% global growth in 2011.The US economy grew at 3% last

year. Growth in the Euro zone was muted at around 2%. In sharp contrast emerging economies

have grown briskly - in excess of 7%. China and India are the clear standouts, peaking at over

10% and 9% growth respectively. With the global economic growth slowing, Growth levels in

India are likely to be impacted. Nevertheless, as we know, the fundamentals of the Indian

economy remain strong. Over the past few years Indias track record has been impressive. The

country recorded almost twice the global growth rate. Whilst the country does face roadblocks

in the short term, the medium to long term growth prospects for India are bright.

The Indian market for aluminium has expanded and is directing towards further growth in the

coming years. Both the public and the private sector are engaged in the production

of alumina and aluminium. With the change in time, the industry has witnessed drastic changes.Earlier, the government played an important role in fixing the regulations in trading of

aluminium as it had monopoly in the production of the metal. But, today, it has lost control

over the price and distribution due to the emergence of the private sector. With the takeover of

INDAL in the year 2000, HINDALCO has emerged as the largest producer of aluminium in

India. India is the fifth largest producer of aluminium in the world. India has 5 per cent of the

total bauxite deposits in the world, which can last for approximately 350 years at the present

consumption rate. The consumption of this metal is also rising, with the figure estimated tohave touched 1.8 million tonne mark in 2012.

In early 1990s when the Indian economy was liberalized, India identified its export potential

and emerged as a net exporter of aluminium. India is considered to be the fifth largest producer

of aluminium in the world. It accounts for around 5 per cent of the total deposits and produces

about 0.8 million tons of aluminium in a year. It is estimated that if the countrys aluminium

consumption rate maintains, it would be having the reserves for over 350 years. India has


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confirmed 3 billion tons of bauxite reserves out of the global reserves of 65 billion tons. The

worldwide alumina production competence is around 58 million tons, of which India has 2.7

million tons. Most of the bauxite mines lie in Bihar, Karnataka and Orissa. In India, the

production of aluminium is highly concentrated in the hands of the following four companies:

1. Bharat Aluminium Co. Ltd (BALCO),

2. Vedanta Aluminium Co. Ltd.(VALCO)

3. Hindustan Aluminium Co. Ltd (HINDALCO).

4. National Aluminium Co. Ltd (NALCO),

Per Capita Consumption of Aluminium in India

The consumption of aluminium in India is very low at 1.8 kg per person in 2011 in keeping

with the countrys low GDP. However, the low per capita consumption of aluminium in India

is, in fact, an opportunity for growth in aluminium consumption against the backdrop of fast-

growing economic conditions in India.

3. COMPANY ANALYSIS


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3.1. BASIC DESCRIPTION OF THE COMPANY:

Bharat Aluminium Company Ltd. (BALCO) has been closely associated with the growth of

Indian aluminium industry. It has played a pivotal role in making aluminium one of the leading

metals of the 21st century with myriad uses ranging from house hold and industrial

requirements to strategic defence and aerospace applications.

BALCO was established in the year 1965 as a Public Sector Undertaking by the Government of

India and was the first major PSU disinvestments in the country. Sterlite group, one of the fast

growing and professionally managed companies of India, has acquired managerial control over the

company by purchasing 51% shares from the Government of India in February 2001. After

acquiring management control the new management has modernized and expanded Alumina,

Smelter and Fabrication Plants. Various improvement projects have been taken up for maximizing

productivity, optimizing capacity utilization and minimizing energy consumption.

The Company consists of an integrated Aluminium Complex situated at Korba in Chhattisgarh. It

is vertically integrated from sourcing of bauxite from its captive mines, refining and smelting to

producing primary aluminium and various semi finished products. It has two Captive Power Plants

of 270 MW and 540 MW capacities in a region having coal resources of over 9000 million tons.

BALCO has a production capacity of 200,000 tons per annum of alumina, 350,000 tons per annum

of aluminium and has expanded its fabrication facility to include five Properzi Rod Mills, ingot and

continuous strip casting machines, integrated hot and cold rolling mills.

BALCO has contributed significantly as a primary producer by providing sustenance to vital

industries and has proved its mettle by developing and supplying special aluminium alloys for the

Intermediate Range Ballistic Missile `Agni` and surface Missile `Prithvi`.

BALCO is bringing up another Captive Power Plant of 1200 MW capacity and has already

obtained clearance to expand its Smelter for producing another 6,50,000 tons of aluminium. This

will enable BALCO to produce 10 lakhs of aluminium every year. It is expected that within a few

years BALCO would emerge as one of the front runners among the global players of the

aluminium industry.


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3.2. NATURE OF BUSINESS (Product Categories):

1. Electrical conductor grade Ingots and wire rods

2. Commercial grade ingots and wire rods.

3. Alloy ingots and wire rods.

4. Fabricated products:

(a) Hot rolled products

(b) Cold rolled products

Electrical conductor grade Ingots


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Hot Rolled plate

3.3. MAJOR MARKETS AND CUSTOMER FOCUS:

Ingots, rods and rolled product users constitute the key customer base of BALCO. While the major

customers are based in India, BALCO, over the last few years has developed a strong export

customer base. The requirements of our domestic as well as export customers are proper

communication, on-time delivery, low defect levels in products, and suitability for end-use. While

BALCO caters to a lot of actual users, OEM customers, a part of the product is also supplied

through dealers, who in turn supply to the end-users.

The following table shows the main types of finished products and the major customers of

BALCO:

PRODUCT

SEGMENT/

SECTOR END USE MAJOR CUSTOMERS

Rolled

Products

Foil Stock(Soft Coils with

cores to prevent

bore collapse)

Packaging medicines/ tabletsfor pharmaceutical industries,

food packing/ wrapping

India Foil, Kolkata, Indo Foils, KorbaRaviraj Foils, Ahmedabad, Marudhar

Industires, Ahmedabad, RS Hygiene,

AMCO

PP Caps - HR

Coils

Pharmaceutical Industry,

Beverages Industry

Manish Aluminium, Bangalore, Alcon

Foils Pvt Ltd, Delhi, Rajasthan Foils

Ltd, Bhiwadi

Manaksia Ltd, Haldia


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Insulation Boiler Tubes, Other

insulation uses

Lloyd Insulations, Mumbai, Delhi,

Chennai, Cauvery Engg. Works,

Pudukottai, Thermax Ltd, Pune, IBP,

Nasik

Fabrication Different Products BHEL, Jhansi, Trichy, Control &

Switchgear, New Delhi, Al-Fab, Nasik,

NALCO, Thyssenkrupp, Germany,

Reynolds, France, Jade Aluminium,

France, Profilglass, Italy

Transport &

Railways

Vehicle Body, Bus flooring,

Windows and water tanks of

Railway coaches

RCF, Kapurthala, MSRTC, APSRTC,

KSRTC, ICF, Chennai, Tata Motors

Ltd, Jamshedpur

Fan Blade Domestic Fans Bajaj Electricals, Pune, Polar Fans, New

Delhi, Uttaranchal Industries, Hardwar

PP Cap stock (CR

coils)

Pharmaceutical Industry,

Beverages Industry

Hardware Point, Kolkata, India Foils,

Kolkata, Almex, Delhi, Laxmi Wire

Netting, Delhi, Star Aluminium,

Kolkata

Defence Sector Missiles, Shells Ordnance Factories

General Architectural use, hoardings,

Cooler body, and other

miscellaneous use

Mainly through Dealers

Wire

Rod

Conductor

Manufacturing

Overhead Power

Transmission

Sterlite Industries (I) Ltd, Silvassa,

Havell's (I) Ltd., Ravin Cables Ltd.,

Apar Industries, Silvassa, Universal

Cables Ltd., Galaxy Cables Industries,

Shakti Cables, Hyderabad, Hindustan

Vidyut Pvt Ltd., Faridabad

CableManufacturing

Underground PowerTransmission

Rakhi Agencies Ltd., Prem Cables PvtLtd., Venkateswara Wire Pvt Ltd.,

Excellent Power Cable Pvt Ltd.,

Polycab Industries, Daman

Steel

manufacturing

industries

Killing of steel Minex, Nagpur, Sarthak Metals Pvt Ltd,

Sunflag Iron & Steel Co Ltd.


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Ingot Remelting Cable/Conductor

manufacturing,

remelting/extrusion

Sterlite Technologies Ltd., Silvassa, JP

Engineers, Delhi, Jindal Aluminium

Ltd., Bangalore, Deepak Cables (I) Ltd.,

Pondicherry, Jammu

Vikram Sarabhai Space Centre (VSSC), Thiruvananthapuram, has invested Rs. 70 crores for

setting up most advanced casting, rolling, heat treatment and finishing facilities at BALCO for

producing high strength aluminium alloys for space applications. So far these alloys were being

imported. Very soon BALCO would start producing aerospace grade products for VSSC and other

aerospace customers.

3.4. EMPLOYEE BASE:

Human resource is a vital asset for any Organization. At present there are 5291 employees

working in BALCO. Best possible measures have been taken by BALCO to enhance and

maintain the high morale of its employees and these have resulted in higher capacity

utilization, production turn over, productivity and profitability.

The break-up of the work-force is shown below in tabular & pie chart form:Group Total No. of employees

Executives 1004

Officers 192

Workmen 3518

Trainees 577

Total 5291


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Level-wise Break-up

19%

4%

66%

11%

Executives

Officers

Workmen

Trainees

BALCO is an equal opportunity employer and injects fresh talent from business schools,

engineering colleges and technical institutes.

Educational Level of employees:

1. Scientific & Technical (having graduate degree in engineering/technology/Science: 1699

2. Administrative (non-technical)

3. Others (including workmen) 3592

Total 5291

3.5. MAJOR EQUIPMENTS, FACILITIES AND TECHNOLOGY USED:

The company has an established structure and clearly identifies the key processes required for

product realization. This includes Manufacturing (Production/Maintenance) processes, and

Support processes including, HR, Commercial, Logistics, Marketing, Quality Assurance,

Finance, Administration, Security and Environment & Occupational Health & Safety.

A. Key Value creation processes


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Key value creation processes based on the criticality are identified to add value to the business

resulting in success and growth. These key processes create value for our customers and our

stakeholders also.

The complete manufacturing process along with the raw materials and products is described

below:

Alumina Refinery Plant

Inbound

Logistics

Aluminium

Production

Outbound

Logistics

Marketing

& sales

After Sales

Service Value


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The Alumina Plant of Vedanta is situated at Lanjigarh, Orissa. The manufacturing of alumina is

done by Bayers Process. This is an important intermediate stage in making aluminum metal

from bauxite received from the mines. Bauxite is crushed and is wet ground in ball mill with

spent liquor (caustic soda) from the process to make the slurry. The slurry is preheated in low-

pressure heaters and subjected to desilication to remove undesired silica content from slurry.

After that, it is again heated in high-pressure pre-heaters and pumped into a series of digesters

operated at high temperature and pressure. Bauxite dissolves giving sodium aluminate and the

other oxides from compounds of soda, alumina and silica. The alumina from bauxite is

chemically transferred in to liquor that is known as pregnant liquor or green liquor. The

pressure and temperature of the slurry is subsequently brought down in a series of flash tanks

where steam is liberated and used for preheating the ground slurry before it is sent to digestion

tanks. The slurry from the last tank is then pumped to settlers for separating out the red mud.

The settled mud is subsequently washed to recover caustic soda in a series of washers. The

caustic soda so recovered is pumped to the settlers to join the main stream with green liquor.

The washed mud from the last washer is filtered and pumped out to a mud pond wherefrom the

clear liquor is decanted and pumped both to the main stream thereby effecting maximum

recovery of caustic soda.

The Green Liquor still contains fine mud particles. This liquor is filtered through pressure

filters to remove the same. After that the green liquor passes through a heat exchanging system

where it is cooled by transferring the heat to the spent liquor being recycled in the process. The

cooled green liquor is then pumped to precipitators where a calculated quantity of 'seed'

alumina hydrate is added and alumina hydrate is precipitated from the green liquor by the

process of crystallization. The slurry is then pumped into vacuum drum filter in two partswhere coarser particles of alumina hydrate separate out as seed and product. The filtrate is

pumped to thickener for separating fine hydrate particles.

The overflow from the thickener, which is pure spent liquor, is heated in the heat exchange

system, evaporated and pumped to the ball mills from where the process is again repeated. The

underflow of the primary thickener i.e. alumina hydrate is pumped back to filter working under

vacuum and the seed is separated from caustic soda.


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The product filtered hydrate of alumina {Al2(OH)3} has to be calcined at high temperature of

1200oC to drive away the combined water. For this purpose it is fed into a rotary kiln where the

alumina hydrate is converted to alumina. The hot alumina, which is discharged from the kiln, is

cooled through cooler and conveyed to storage silo for using as raw material in Smelter Plant.

Smelter Plant

Alumina received from the alumina plant is reduced to aluminium in electrolytic cells by fused

salt electrolysis following Hall-Heroult process. Alumina, which is an oxide of aluminium, gets

dissociated into aluminium and oxygen in the cells according to the following reaction:

2Al2O3 4Al + 3O2

3C + 3O2 3 CO2

Aluminium deposits at the cathode i.e. bottom of the cell and oxygen goes to the anode where it

reacts with the carbon of the anode and forms CO and CO2 depending on the operating

conditions.

BALCO has prebaked cells with vertical studs mechanism. Aluminium fluoride is added to

compensate for any loss of fluoride due to volatilization during the operation and to neutralize

the Na2O coming with the alumina. Calcium fluoride, which is maintained at around 4 5 %

concentration in the bath, reduces the melting point of cryolite enabling maintaining lower

operating temperature without loss in the conductivity of bath. Cryolite is required to

compensate for the loss of electrolyte in the carbon linings (cathodes), bath skimming etc.

The two polarities (cathode and anode) of the cells where the alumina is reduced to aluminium

are made of carbonaceous material. Anode Paste is required to be changed after a definite time

interval since it gets consumed due to its reaction with gases evolved during continuous

reduction of alumina. Cathode lining is also changed after about four years of life.


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Molten aluminium metal deposits on the Cathode carbon under molten electrolyte layer. The

metal is then tapped by vacuum ladle. Alumina is charged at suitable intervals after breaking

the crust that is formed on the bath layer.

The aluminium industry is one of the most energy-intensive industries. In BALCO the

operation is being carried out at a current intensity of 100 KA in Sodergberg plant and at a

current intensity of 350 KA in Prebaked Plant. Cathode is a rectangular pot made of mild steel

sheets, closed at the bottom. Side and bottom walls of the pots are made of heat resistant

insulating bricks and baked carbon blocks. Steel collector bars are fixed at the bottom of carbon

blocks that are connected with the cathode bus bar to carry electricity to the next cell. BALCO

plant has so far been the single plant, which is provided with three-stage insulation to avoid

electric current hazard.

Anode Paste Plant & Anode Rodding Plant:

Carbon Electrode Paste, consisting of anode paste and cathode ramming paste, plays an

important role in the manufacture of aluminium by electrolytic reduction of alumina. While the

anode paste takes active part in the reduction reaction and gets consumed, the cathode ramming

paste is required for cementing the pre-baked carbon cathode blocks of the electrolytic cell to

have a single mass at the bottom of the electrolytic cells as well as uniform current distribution.

In the Soderberg electrolytic cells the continuous self-baking Soderberg anode is produced

from a paste of Calcined Petroleum Coke (CPC) and Coal Tar Pitch (CTP) while the anode

goes downwards through the rectangular steel anode casing, the heat generated during the

electrolysis of alumina to aluminium bakes the paste. But in Prebaked electrolytic cells

prebaked anodes are assembled in Anode rodding Plant.

Fabrication Plant

The downstream units at Korba include rod mills, an aluminium foundry, a strip caster, a hot

rolling mill, two cold rolling mills and heat treatment furnaces and finishing lines.


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Cast House:

The Cast Houses are designed for producing Properzi wire rods and EC grade pigs for direct

sale in the market. The production facilities include melting furnaces, metal filtration systems,

casting stations, Properzi wire rod mills and coilers.

Pure molten aluminium received in ladles from the Cell House is the basic charge in the oil-

fired furnaces of the Cast House. Scrap and alloying additives (for alloy rods) are added to it to

make the required composition. It is then cast through either ingot casters or Properzi

continuous casters. Properzi mill and finally coiled in the form of wire rods.Foundry Shop:

The foundry Shop is designed for producing slabs required for the Sheet Rolling Shop and also

for producing The production facilities provided in the shop consist of melting/alloying

furnaces, refining/holding furnaces, casting machines, ingot cutting and mechanical treatment

line and homogenizing furnaces.

Pure molten aluminium received in ladles from the Cell House is the basic charge in the oil-

fired furnaces of the Foundry. Scrap and alloying additives are added to it to make the required

alloy composition. The refined metal is tapped to casting machines for casting wrought

aluminium slabs. The slabs are inspected, and cleared by Quality Assurance before sending to

Sheet Rolling Shop for further rolling. There is also a continuous caster (strip caster) which

produces cast coils, which are further rolled in the Sheet Rolling Shop.

Sheet Rolling Shop:

The Sheet Rolling Shop is designed to produce sheets and strips of aluminium and its alloys.

Slab or rolling ingots from the Foundry, homogenized if required, would be delivered to the

Sheet Rolling Shop. After scalping, these slabs are heated and hot rolled on a 4-high mill. Hot

rolled finished coils and plates (finished to required sizes) are sold as such to customers. The

hot rolled coils meant for cold rolling are further rolled to lower gauges in either of the two

cold rolling mills, heat treated to achieve required properties and cut to required sizes in one of


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the three slitting lines or in the cut-up line. These are then inspected by Quality Assurance

department and materials cleared by them is packed appropriately and shifted to the warehouse.

From the warehouse products are dispatched to the customers.

3.6. ATTRIBUTES OF UTMOST IMPORTANCE TO TARGET

CUSTOMERS:

1. Improved communication with Customers:

BALCO has a central Marketing department based at Korba. To facilitate customer interaction

and to set up establishments nearer to our actual customers, four regional marketing offices

have been set up. These are Northern Region at Delhi, Western Region at Mumbai, Eastern

Region at Kolkata and Southern Region at Bangalore. To facilitate delivery of finished goods

to customers, there are depots in different regions apart from the warehouse based at Korba.

The depots are at Kolkata, Nagpur, Faridabad, Jaipur, New Delhi and Ahmedabad.

.

Overall Customer & Market Focus

.

Start

Customer & Market Focus Processes

StrategyDeployment-Marketing &Sales BSC

Customer

Segmentati

on

Listening

&

LearningOrder Generation &

Fulfillment ProcessBusiness Development

Process


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Order Generation & Fulfillment Process VCP 02 (Sales)

Start

Process

VCP 01(Marketing)

So they have ample exposure to all varieties of finished products and their end uses. This helps

them in approaching customers and customer groups who use such products. Market segments

are also identified similarly based on product and end use knowledge. BALCO also has

engaged consultants who carry out survey of our potential customers and collect all relevant

information using which our regional officers approach those customers for trying out our

material.

2. Dedicated Product Development Cell:

Seek and analyze inputs from

ABP

Prepare monthly sales plan

_ Business-wise

_ Zone-wise

_ Product-wise

_ Domestic / Exports

_ Customer Specific Dispatch

stockyard, direct, exports

Manage complaints (CCHP)

Manage Customer Contacts to

achieve Sales Plan (CRM)

Credit Control Management

Process (CCMP)

Customer Satisfaction

Determination Process

Assessment and Review:

Customer Satisfaction Index, OverallSales, Domestic share, Export Sales

Ref. Input / Output measure of VCP-02 for

a. Downstream Opportunities

Management (both)

b. Business Promotion Process (both)

c. Solution and Market Development in

India (Dom)

Assessment and Review:

No of Solutions developed

Strategic

Challenges

Strategic

Development

Annual / month reviews by CEO


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BALCO has a dedicated Product Development Cell. It develops new alloys/customizes existing

products as per the recent trends and requirements arising in the market.

3. Availability of detailed Product brochure:

BALCO has a detailed Product Brochure which is available to all potential customers. One

such Product Brochure is enclosed with this application. BALCO also invites potential

customers and visit its facility so as to get a feel and understand its capabilities from first-hand

experience.

4. BALCO has defined its SALES AND MARKETING POLICY, based on the following

tenets:

In all our businesses, our aim is to become preferred supplier for all our customers through

high level of customer satisfaction. Market leadership and market development remains our

continuous focus.

All sales to customers are made on secured basis.

Prices are approved by the Pricing Committee and are LME linked.

The focus is on securing major sales quantities through Memorandum of Understanding (tie-

ups) with major customers.

Annual Marketing Plan outlines key strategies, operating principles and initiatives (e.g. spot

versus MoU sale, structure and guidelines for premium / discounts, market development

initiatives etc.)


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Sales are made to end users and sales to traders / commission agents / middlemen are

discouraged.

Ad-hoc and case-to-case discounts are not given.

Prices as on date of dispatch are applicable.

The weight of the product dispatched from our location is final.

No discount due to quality issue is given to customers. Material is replaced in case of a

genuine quality issue. Any deviation requires specific approval. In case of quality complaint,

material is taken back in the original form and not in any other form (e.g. scraps).

In case of sale against tax concessional form, the same is collected before dispatch of

material.

A system of customer satisfaction measurement is in place.

Customer accounts are settled promptly. All customer accounts are reconciled and

confirmation is obtained from customers at least on a quarterly basis.

BALCO works towards increase of per capita consumption of base metals through applicationdevelopment and marketing efforts.

BALCOs sales terms and condition specify that it would not be responsible for any

consequential damages.


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System of continuous benchmarking with global leaders/competitors is in place for premium/

prices and marketing practices.

3.7. TYPE AND NUMBER OF SUPPLIERS OF GOODS & SERVICES:

BALCO realizes that Total Quality starts right from procurement stage and hence goes only

for reputed suppliers for purchase of raw materials and process consumables. Criteria for

selection and evaluation of suppliers are defined. BALCOs procurement comes under four

major categories viz. Raw materials, consumables, services and consultancies.

Some of our key suppliers in each of these categories and their addresses are listed below.

Type

Key

Products/Services Key Consumer Key Suppliers

Raw-materials

Caustic Soda Lye Alumina Kanoria Chemicals & Industries Ltd., Binaikia Park Plaza, Park St., Kolkata

Furnace Oil Alumina I.O.C.L., (Lube Div.), VIP Road, Telibandha, Raipur


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Coal Alumina S.E.C.L., SECL Bhavan, Seepat Road, Bilaspur

C.P.Coke Alumina

India Carbon Limited,4th Floor, Temple Chambers, Old Post Office

St.,Kolkata

Consumables

Foundry Chemicals

Foundry & Cast

House Scottish Chemicals, Span Centre South Avenue, Mumbai

Gas Collection

Hoods Smelter Hindustan Foundry & Engg Works, Industrial Area, Rajgamar Rd., Korba

Magnesium Metal

Ingots

Foundry & Cast

House Sanjay Chemical Company,5th Floor, FMC Fortuna, AJC Bose Rd., Kolkata

Roll Coolant Oil Sheet Rolling Shop Eastern Petroleum Pvt Ltd., Swastik Chambers, CST Rd, Chembur, Mumbai

Services

Security Service Plant Services SDB CISCO (I) Ltd.,14, Avenue Rd, Nungambakkam, Chennai

Cable Laying Plant Services Universal Cables Limited,Birla Vikas, Satna (M.P)

Catering & House

Keeping Plant Services

Radhakrishna Hospitality Services,Jyoti WireHouse,Shah Ind. Estate,

Andheri, Mumbai

Heavy Equipments Plant Services Nizami Crane Service, Ravishankar Nagar, Korba

Consultants

Mines Consultant Mines SRK Consulting, West Perth WA 6872, West Perth, Australia

Civil Construction Civil S. Kumar & Associates,Vishwa Deep Tower, Dist. Centre, Janakpuri, Delhi

Aluminium Refinery Refinery Tushar Kanti Sen,Shantikunj New Park, Kolkata

3.8. CRITICAL SUCCESS FACTORS THAT THE ORGANISATION

HAS IDENTIFIED AS COMPETITIVE FACTORS:


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As per volume of production, BALCO ranks second in the domestic market. However, we have

recently started to export our ingots and rolled products. There are 2 major domestic

competitors in the national aluminium market viz. Hindalco and Nalco.

Capacity expansion and modernization, dynamic leadership by top management, focus on

productivity and cost of production are the three principal factors that determine our success

relative to our competitors.

The key changes that may affect our competitive situation are capacity expansion of alumina

manufacturing, ingot and rod manufacturing, power generation and modernization in rolled

product manufacturing.

Periodic results published by competitors, media reports, technical journals and individual

knowledge from employees who have shifted from other industries. This is also applicable to

comparative data for analogous processes outside the aluminum industry.

Our key business related strategic challenge is to continually reduce our cost of production and

be the lowest cost producer.

In view of the above, our operational strategic challenge is to obtain the right product mix and

to benchmark against the worlds best for reduction in specific consumption of raw materials

and consumables.

Our human resource strategic challenge is to build and retain a young motivated talent pool of

employees to achieve our operational and business goals.

The above-mentioned business strategic challenge is also associated with organizational

sustainability.

BALCOsstrategic plans are built upon Vedantas 4 pillars of strategy:

Optimize the performance of our existing assets improving production and reducing costs.

The overall result of several ongoing efficiency initiatives has helped maintain stability in

operating costs and increase in productivity and volumes.

Pursue organic growth opportunities

BALCO delivers projects at industry-leading benchmark capital costs, within budget and ahead

of schedule.


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Consolidation of minorities and further rationalization of the Group structure.

Significant progress has been achieved in 2007 in respect of acquisition of the Indian

Governments remaining stake in BALCO which is 49%.

Leverage our established skills and seek additional investment opportunities.

The abundance of bauxite and coal in India, combined with the proven track record of Vedanta

in project delivery, presents an exciting growth opportunity.

The top management identifies challenging areas/areas which need improvement, assesses the

organizational performance in those areas, sets stretched goals for those areas based on

benchmarking/ realistic assessment / business requirements. These targets are given as

deliverables for the relevant process owner of that area. These targets are cascaded down to

other executives/officers of that area. The performance of the executive/ officer of that area is

measured against the performance of the deliverables.

BALCO follows the following framework in planning our strategies in all our business

processes. Based on our vision and mission and identified internal and external analysis we

formulate strategies that helps us to achieve our vision. In the view of achieving the business

goals and ambitions of the company we have strategic plans and other implementation plans for

achieving the desired results. We have a Business plan exercise, in which the details about the

forthcoming year are clearly planned and actions to be taken are mentioned. Strategic inputs

from shareholders, customers, suppliers and employees and other interested parties e.g. the

community are considered in the development of business level strategies.

The Strategic Planning process of BALCO is a dynamic and flexible one to meet out strategic

challenges and to accommodate any changes as the business environment changes. In the

strategic planning exercise the company sketches the needs and the goals within a specified

time limit. The important business aspects are given more focus to enable the company perform

better.

DEVELOPMENT / INTRODUCTION OF NEW TECHNOLOGIES AND LIKELY

CHANGES IN STRATEGIES:

BALCO is bringing up another Captive Power Plant of 1200 MW capacity and has already

expanding its Smelter for producing another 3,50,000 tons of aluminium. This will enable BALCO


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to produce 6 lakhs of aluminium every year. It is expected that within a few years BALCO would

emerge as one of the front runners among the global players of the aluminium industry.

4. PROJECT SPECIFIC ANALYSIS


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4.1. GLOBAL FLOW OF ALUMINUM 2006-2025


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World primary and secondary aluminum consumption, 2011

Aluminum consumption in developing economies


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Variation in end uses of consumption in these countries likely reflects in part

their stage of development.


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Aluminum consumption in developed economies

Transportation is a major end use in developed countries.


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Model of End Use and GDP/capita:

The data are not robust enough to propose a model at present

However, a hypothesis may be formed based on the available data:

as countries begin to develop their use of aluminum is first in the electrical powerinfrastructure and for durable goods

as development proceeds aluminum is used in construction and then in fabricated metaland machinery

finally as the country becomes fully developed transportation becomes the major enduse


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GDP, aluminum, and electrical uses

GDP, aluminum, and transportation


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4.2. PREDICTING FUTURE CONSUMPTION:

We have developed a logistic model relating aluminum consumption per capita to GDPper capita

We use this model to estimate the consumption of aluminum in the 20 most populouscountries and the rest of the world in 2025

Aluminum consumption and GDP:


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GLOBAL MARKET SEGMENTATION (Sectorwise use of aluminium)


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DOMESTIC MARKET SEGMENTATION(Sectorwise use of Aluminium in India)

8

17

5

7

41

Indian sectorwise consumption of

aluminium

machin

transp

packagi

consu

constru

electric


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4.3. DEMAND FORECAST

REGIONWISE CONSUMPTION AND DEMAND FORECAST

AR (IN

mn.)

DEMAND Electrical Transportation Construction Machinery Consumer

Durables

packaging

0 1.73 1730000 692000 346000 259500 173000 173000 86500

1 1.75 1745714 698286 349143 261857 174571 174571 87286

2 1.89 1891837 756735 378367 283776 189184 189184 94592

3 2.06 2056356 822542 411271 308453 205636 205636 102818

4 2.23 2227480 890992 445496 334122 222748 222748 111374

5 2.38 2381197 952479 476239 357179 238120 238120 119060

6 2.50 2503111 1001244 500622 375467 250311 250311 125156

7 2.64 2637376 1054951 527475 395606 263738 263738 131869

8 2.81 2809349 1123740 561870 421402 280935 280935 140467

9 2.96 2956702 1182681 591340 443505 295670 295670 147835

0 3.10 3098933 1239573 619787 464840 309893 309893 154947

Year China N.America Europe

Asia Ex.

China

Latin

America Others Global

2004 5.9 7.19 8.38 4.59 1.17 0.82 28.05

2005 7.08 7.22 8.48 4.93 1.19 0.77 29.672006 8.74 7.26 8.8 5.1 1.24 0.83 31.97

2007 12.3 6.46 9.2 5.17 1.33 0.89 35.35

2008 12.73 5.82 8.82 5.4 1.39 0.99 35.15

2009 13.84 4.58 7.18 5.09 1.31 0.97 32.97

2010 16.72 5.29 9.06 5.89 1.65 1.09 39.70

2011 18.18 6.26 8.48 5.81 1.59 1.10 41.43

2012 20.06 6.26 8.36 5.93 1.67 1.18 43.46

2013 21.75 6.26 8.20 6.10 1.75 1.23 45.29

2014 23.28 6.26 8.10 6.28 1.83 1.28 47.03

2015 25.34 6.26 8.20 6.46 1.91 1.34 49.502016 27.19 6.26 8.35 6.68 2.00 1.40 51.88

2017 28.78 6.26 7.97 6.73 2.04 1.45 53.23

2018 30.61 6.26 8.01 6.94 2.14 1.51 55.46

2019 32.38 6.26 7.99 7.12 2.21 1.56 57.51

2020 34.18 6.26 7.97 7.28 2.29 1.62 59.60


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4.4. CURRENT PRODUCT MIX OF BALCO

WIRE ROD AND INGOTS


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ROLLED PRODUCTS (PRODUCT MIX) for the last 4 years


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4.5. COMPETITOR ANALYSIS:

ROLLED PRODUCTS

PRODUCTION(KMT)DOMESTIC(KMT)EXPORT(KMT)

Vedanta 70 70

Hindalco 207 157 50

Nalco 24 24

Secondaryre-rollers 50 50

Imports 100 100

454 404 50


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4.6. PRODUCT MIX COMPARISON

Hindalco mix is mostly CRP, whereas Balco mix is 42% hot rolled product

Balco needs to leverage capabilities in producing hard alloy hot rolled plates in 2012-13 in

order to increase NSR.

Qty (MT per

Annum)NSR Rs. PMT NEP (USD)

Qty (MT per


CRP 203000 149342 795 39506 138102 582

HRP 4000 163125 1057 3676 164880 1132

HRC 0 0 0 20759 127133 351

TOTAL 207000 149609 800 63941 136080 539

% of GEQ in CRP 18% 70%

Qty (MT per


Qty (MT per


CRP 203000 149342 795 50050 143980 692

HRP 4000 163125 1057 8950 168201 1154

HRC 0 0 0 19000 131611 457

TOTAL 207000 149609 800 78000 143746 688% of GEQ in CRP 18% 65%

Product

HINDALCO BALCO (2011-12)

Product

HINDALCO BALC0 BP 2012-13


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DOMESTIC MARKET MAPPING 2011-12

Mkt Size Segment Hindalco Balco Nalco Secondary Imports22000 Foils 36000 3000 2000 0 62000

40000 Closure* 20000 15000 0 5000 025000 Transportation 10000 6000 3000 5000 04000 Insulation 1000 5000 3000 4000 06000 Fan Blades 8000 4000 2000 1500 0

24000 Lithographic 18000 0 0 0 6000

3000 Composite Panels 3000 0 0 0 10000

5600 Utensils 12000 600 0 3000 024600 Roofing 20000 600 0 3000 0

700 Hard Alloy Plates 0 500 0 0 1200

6000 Bus Duct 4000 2000 0 0 0

29300ConsumerDurables

6000 1800 0 1500 20000

000 Smelter Projects 0 5000 0 0 0

93000 GEQ - Others 22000 28500 14000 28500 0429200 TOTAL 160000 72000 24000 51500 99200

* BALCO supplies HRC to re-rollers for closure stock production


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RODS AND INGOTS

Balco Remarks

Korba VAL HINDALCO STL

olled Products Production MT 167969 99528 10156

elt Loss Rs/MT 382 421 1082 475

rnace Oil Rs/MT 1002 0 667 2670

STL are not relevant in

todays scenerio

eam Rs/MT 0 0

wer Rs/MT 176 232 134 529

ss Dross realization Rs/MT -192 -72 0 -297

et Variable Conversion CostsRs/MT

1,717 1,146 1,933 3,462

anufacturing Expenses Rs/MT 1368 1002 336 372

anpower Cost Rs/MT 1504 571 928 287

min Expenses Rs/MT 324 418

cking Expenses Rs/MT 89 590 14

ocated Exp Rs/MT 463 0

tal fixed cost 3748 2581 1264 673

ep & maint Rs/MT 106 219

epreciation Rs/MT 63

OTAL OVERHEADS Rs/MT 5465 3727 3366 4354

& D Cost Rs/MT 0 102 5,299 0

her income Rs/MT -222 0 -1061 0

tal COP Rs/MT 5,243 3,829 7,604 4,354

EY PARAMETERS UNITS


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4.7. OPTIMIZATION OF PRODUCT MIX

Current product mix(in Tons):

Wire rod: 1,86,000

Ingots: 7,500

HRC: 20759

CRP: 39506

HRP: 3676

UNIT NEP (in Rs.):

Wire rods: 10000

Ingots: 5000

HRC:19656

CRP: 32592

HRP: 63392

NEP (Total):

Rs.3826147448

CONSTRAINTS (POST EXPANSION):

1. Wire rods


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7. HRC


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HRC: 1,62,000

CRP: 2,54,500

Domestic supply by balco (2012) (in tons):

Wire rod: 1,86,000

Ingots: 7,500

HRC: 20759

CRP: 39506

HRP: 3676

Domestic market share(Balco):

Rods: 27%

HRP: 28%

HRC: 13%

CRP :15.5%

5. CONCLUSION AND RECOMMENDATION:

It is concluded that after capacity expansion increasing the production of EC rods, Hot Rolled

Plates and Cold Rolled Products the profit of the Company would be substantially enhanced.

Using the Solver function in Ms Excel it is being recommended that the Company should

produce the following products to maximize profit.

TONS MADE 4,20,000 100000 8000 60000 12000

product Wire rod Ingots HRC CRP HRP

Unit NEP 10000 5000 19656 32592 63392

The ability to deal with constant fluctuations in LME prices of aluminium would be the great

challenge going forward, along with the economies of scale, regular supply of feedstock and

environmental issues. The Aluminium industry is expected to grow. The substitution threat of


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Aluminium from various metals and materials will continue but may not be a huge threat. Key

end-user segments in the region would contribute significantly to macro and micro growth are

Construction, electrical, packaging and industrial based applications which are expected to play

a significant role during the forecast period.

6. OUTCOME:

As Bharat Aluminium Company has undertaken ambitious Expansion plans, i.e. to increase the

production capacity from 2.5 lakh tons to 6 lakh tons per annum it was essential to optimize theProduct Mix after capacity expansion. Elaborate study was carried out to find out the present

sector wise market demand and demand forecast (both Global and Domestic). The present

production capacities of various products were assessed and accordingly a Product Mix was

recommended to maximize the Profit of the Company.

7. LEARNING FROM SIP:

During working on this Project a lot of things were learned. The learnings are given below:

1. Manufacturing process of various aluminium products.

2. Production Planning Process.

3. Process of collecting Data from various regional sales Offices.

4. Analyzing Data.

5. Studying Demand Supply of a commodity.

6. Optimization of Product Mix by using Solver.


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8. REFERENCES:

1. KPMG Reports 2012

2. Aluminium India, 2011

3. Vision 2012

4. Aluminium Association of India

5. Light Metal Age

6. Harbor Intelligence Report (2011)

7. International Aluminium Institution

8. http://www.aluminum.org

9. www.transportationforamerica.org

10. http://www.aluminumintransportation.org/

11. Wikipedia

12. INCAL 2011
http://www.aluminum.org/http://www.aluminum.org/http://www.transportationforamerica.org/http://www.transportationforamerica.org/http://www.aluminumintransportation.org/http://www.aluminumintransportation.org/http://www.aluminumintransportation.org/http://www.transportationforamerica.org/http://www.aluminum.org/

Documents

Balco. Vicky. Project Optimation of Product Mix