Sterlite Industries (India) Limited - Sterlite Industries India Ltd.

Notwithstanding the rise in aluminum production and capacities in the region, aluminum supplies in Asia have lagged behind demand,
resulting in a supply deficit of 2.9 million tons during 2008. During this period, China had a surplus of 0.3 million tons while the rest of Asia
had a deficit of 3.2 million tons. However, this situation is likely to change with the decrease in demand of primary aluminum due to the
downturn in the global markets in 2009.
Alumina
Alumina is a key raw material for aluminum production. Generally it takes two tons of alumina to produce one ton of primary aluminum.
The five largest alumina producing companies are UC RUSAL (12.9%), CHALCO (12.0%), Alcoa (11.0%), Rio Tinto Alcan (10.4%) and
Alumina Limited (6.7%), which together accounted for approximately 53.0% of the total alumina produced worldwide in 2008.
The following table sets forth the regional production of alumina from 2005 to 2008:
Year Ended December 31,
2005 2006 2007 2008
Region Volume % Volume % Volume % Volume %
(thousands of tons, except percentages)
Oceania 17,918 26.9% 18,607 25.2% 19,249 23.8% 19,728 22.8%
Latin America 13,189 19.8 14,872 20.1 15,110 18.7 15,767 18.2
China 8,536 12.8 13,740 18.6 20,900 25.9 25,137 29.0
North America 6,929 10.4 6,799 9.2 6,076 7.5 6,160 7.1
Western Europe 6,560 9.9 6,747 9.1 6,809 8.4 6,951 8.0
CEE (2) 6,699 10.1 6,657 9.0 5,828 7.2 5,631 6.5
India 3,065 4.6 2,991 4.0 3,178 3.9 3,572 4.1
Rest of Asia (1) 2,904 4.4 2,996 4.1 3,056 3.8 3,111 3.6
Africa 736 1.1 530 0.7 526 0.7 595 0.7
Total 66,651 100.0% 74,168 100.0% 81,080 100.0% 86,651 100.0%
Notes:
(1) Rest of Asia is Asia excluding China and India.
(2) Central and Eastern Europe.
Source: Brook Hunt Aluminium Metal Service Report, May 2009.
The sharp increase in alumina production in China in 2006 turned the global alumina market from a deficit in 2005 to a surplus in 2006. In
2007, China's alumina demand grew at 34.6%, pushing global demand growth up 13.0% for the year and relatively weaker supply during the
year reduced the surplus of alumina to 156,000 tons. In 2008, the surplus of alumina increased to 3,241,000 tons.
The following table sets forth the demand-supply balance for alumina from 2005 to 2008:
Year Ended December 31,
2005 2006 2007 2008
(thousands of tons)
Global Alumina Surplus/(Deficit) (1,657) 1,704 156 3,241
Source: Brook Hunt Aluminium Metal Service Report, May 2009.
Bauxite
Bauxite, the principal raw material used in the production of alumina, is typically open-pit mined in very large-scale operations. Between
2.0-3.6 dry tons of bauxite are usually required to make one ton of alumina (depending on ore type, alumina content and variables such as
proportion of reactive silica and organic matter). Based on data from US Geological Survey, Guinea has the largest bauxite reserves in the
world (25%), followed by Australia (21%), Vietnam (12%), Jamaica (7%), Brazil (7%), China (5%) and India (3%).
Pricing
Aluminum is an LME traded metal. It is either sold directly to consumers or on a terminal market. The price is based on the LME price but
producers are also able to charge a regional price premium, which generally reflects the cost of obtaining the metal from an alternative source.
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