Discuss the aluminium crisis in international market and its effects on India’s Aluminium Industry.

Civil Services Main Examination

General Studies (Paper - 1) : Model Question & Answers


Question: Discuss the aluminium crisis in international market and its effects on India’s Aluminium Industry.

ChinaAnswer: China, which has been expanding its infrastructure over the past decade, is the world’s biggest consumer of aluminium. It started overproducing the metal, thanks to cheap land and labour and government subsidies. The country today controls over half of the global production and dominates the estimated US $ 100 billion aluminium industry that produces the metal for an array of products, including cars, cans, railway coaches, aeroplanes, windmill blades and high technology electronics such as smart watches.

The problem began when the world was recovering from the global financial crisis around 2009. During this time, China started building an inventory for its domestic industry by buying its bauxite from India and Malaysia. This led to an oversupply of the metal in China’s domestic market. China’s metal demand experienced a crash in the first half of this year after its economy began to slow down – its GDP growth rate has fallen from a peak of 14.2% in 2007 to 7% in June 2015.

This economic turmoil led to a slowdown in Chinese demand, causing a steep drop in metal prices. The crash had global repercussions. The metal has become difficult to trade. It costs US $ 1800 to produce a tonne of aluminium, while its market price is around US $1640. India could not remain immune from this international turmoil. Owing to cheap availability of aluminium in the international market, Indian companies imported the metal, mostly from China and West Asia rather than domestically producing it. The share of domestically produced aluminium in domestic consumption reduced from 66% in 2008 to 44% in August 2015. It is forcing Indian companies to shut down operations and rendering many workers jobless.

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