Energy is the single biggest variable in aluminium cost structures, says Praveena Rai, MD & CEO of MCX

India’s aluminium pricing mechanism has gained immense prominence, and its major credit goes to the Multi Commodity Exchange of India Limited, as they are playing a central role in improving domestic price discovery. Today, AL Circle is in conversation with an eminent personality from that esteemed organisation, Ms Praveena Rai, Managing Director & CEO of MCX. Ms Rai has candidly weighed in on the ongoing price volatility, attributing it not only to the Middle East geopolitical crisis but also to other structural factors. For instance, energy contributes to about 35 per cent of production costs but is now undergoing inflation and translating it into high aluminium prices. According to her, the taker of this volatile primary aluminium price is the downstream producers who are operating with only a 5 per cent margin.

To know more such valuable insights of Ms Rai, continue reading the interview.

Ms. Praveena Rai is a distinguished business leader with over three decades of experience spanning financial services, digital payments, banking, technology and markets. As the Managing Director & CEO of MCX, she is focused on strengthening India's markets, driving innovation, and supporting the country's economic growth through efficient and resilient market infrastructure. Under her leadership, the Exchange has innovated new commodity products, expanded reach and participation and demonstrated strong operational and strategic progress. Prior to joining MCX, she served as Chief Operating Officer of the National Payments Corporation of India (NPCI) and held senior leadership positions with HSBC and Kotak Mahindra Bank.

To know the production, demand and consumption forecasts on bauxite and alumina, explore the report "Global Bauxite & Alumina Market Forecast to 2036: Supply–Demand, Trade Flows & Price Outlook"

AL Circle: As of mid-August, aluminium futures on MCX (August 31 expiry) are trading in the range of INR 350 to 400 per kg, marking a 62 per cent year-on-year rise from around INR 242.1 per kg. While tightening global supply and robust demand have supported prices worldwide, what India-specific structural or market factors do you believe are amplifying the price momentum domestically?

Praveena Rai: This rally is a reflection of a confluence of structural and geopolitical forces acting simultaneously - and MCX is right at the centre of that price discovery. The ongoing Middle East conflict has pushed global aluminium prices above USD 3,500 per tonne. On MCX, the domestic benchmark has responded in tandem, amplified further by the INR-USD movement.

The market response has been mixed. On the hedging side, we are seeing significantly heightened activity from producers and large consumers - which is exactly what an exchange like MCX is designed to facilitate during periods of elevated volatility. On the investment side, retail and proprietary participants are also active. However, the buying sentiment in the downstream sector has been cautious. Approximately 3,500 downstream MSMEs processing around 3.9 million tonnes of aluminium annually are functioning at just 65 per cent capacity with margins of around 5 per cent. High input costs are squeezing their margins. MCX's role here is not just as a trading venue - it is to provide these players a credible hedging mechanism to manage their price risk.

AL Circle: Aluminium prices have risen in recent months driven by geo-political factors and supply crunch in West Asia. Are other factors contributing to this multi-year growth?

Praveena Rai: Absolutely. Geopolitics is the proximate trigger, but the structural underpinnings were already in place. In 2024, alumina prices skyrocketed by over 70 per cent, driven by disruptions in Australia, Brazil, and Guinea - well before the West Asia escalation. That raw material pressure flowed through to primary metal costs. Additionally, production caps in China and US tariff on aluminium resulted into panic buying among consumers.

Beyond supply shocks, demand fundamentals are robust. Global energy transition requirements - EVs, solar panels, power transmission - are creating sustained long-term demand for aluminium. Despite steady growth in demand to 5.5 million tonnes by end-2025, India's per capita consumption remains at 3.9 kg, which shows that domestic demand has significant headroom to grow. Add to this the currency dynamics: a weaker rupee amplifies the landed cost of any imported metal and pushes domestic prices higher in INR terms. These are not temporary effects. The multi-year trend reflects a genuine structural re-pricing of aluminium globally.

AL Circle: With aluminium prices in a phase of heightened volatility, what risk-management or hedging strategies would you recommend for producers, consumers, and downstream players?

Praveena Rai: This is perhaps the most important question for our ecosystem. Volatility is not the enemy - unhedged exposure to volatility is. MCX provides the tools; what's needed is greater adoption discipline.

For producers, the classic strategy is to sell futures against a portion of anticipated production - locking in margins when prices are elevated, as they are today. For large consumers such as cable manufacturers, auto component makers, and packaging companies, buying futures on MCX provides a cost ceiling that protects their downstream profitability. We also encourage participants to use calendar spread strategies to manage seasonal pricing differentials.

Beyond instruments, I want to stress the importance of disciplined hedge ratios. Over-hedging in a rising market carries its own risk. A phased hedging approach - building positions over time rather than in one tranche - is generally more prudent in a volatile environment like this one.

Explore primary aluminium suppliers, product listings and trade opportunities on AL Biz

AL Circle: Energy accounts for ~40 per cent of aluminium production costs, making power prices a critical determinant. How do you see energy costs influencing aluminium prices in India in the near to medium term?

Praveena Rai: Energy is the single biggest variable in aluminium cost structures, accounting for about 35 per cent of cost of production, and this is precisely why MCX's launch of Electricity Futures in July 2025 is so strategically significant. Aluminium smelting plants are often located near electricity production plants due to the high energy requirements of the smelting process.  Electricity pricing is influenced by a wide range of demand and supply variables - from weather and seasonal shifts to peak usage patterns - and our electricity futures are designed to support transparent, efficient, and forward-looking price discovery.

In the near term, power costs in India may remain elevated due to coal price pressures and increasing renewable intermittency. For primary producers with captive power plants, the insulation is partial. For secondary and downstream processors relying on grid power, this is a material cost driver. As MCX now offers electricity futures settled against unconstrained market clearing prices, aluminium producers and large industrial consumers can, for the first time, hedge both their metal price exposure and their power cost exposure on a single exchange platform. That is a transformative capability, and I believe it will deepen participation from the aluminium sector specifically.

AL Circle: Given India's distinct demand-supply dynamics, do you see scope for more customised or region-specific aluminium and base metal contracts on MCX?

Praveena Rai: India's aluminium market does have distinct regional characteristics - the South and West are major consumption hubs for cable and auto ancillaries, while the East hosts primary production. Basis risk between LME-linked supply chain agreements and domestic physical prices is a real concern for Indian hedgers.

We are evaluating product structures that better reflect Indian physical market fundamentals - including domestically referenced contracts, quality-differentiated specifications relevant to Indian grades, and potentially tenor structures that align with India's procurement cycles. The principle we follow is that every futures contract must solve a genuine risk management problem for a material segment of the market.

Recently, we have also announced quality standards that are more aligned to Indian markets and would be empanelling domestic suppliers and accepting aluminium that meet these standards for exchange good delivery. We are in active dialogue with the aluminium value chain - producers, rollers, extruders, and cable manufacturers - to ensure that the product design is fit for purpose.

AL Circle: India's per capita aluminium consumption is 3.9 kg versus the global average of 11 kg and China's 25-30 kg. India aims to reach 12 kg by 2047. Could sustained high prices impact this ambition?

Praveena Rai: This is a genuine tension that deserves honest acknowledgment. Bridging this gap would require deeper penetration of aluminium in end-user applications - either through increased usage of aluminium-based goods by consumers or by raising the percentage of aluminium content in sectors such as mobility, construction, packaging, and consumer durables.

Sustained high prices create a short-term headwind for consumption growth - they incentivise substitution towards steel, plastics, or other materials in cost-sensitive downstream applications. The aluminium price surge is squeezing India's MSMEs, which are the backbone of downstream consumption. If left unaddressed, this could slow penetration in precisely the segments that are meant to drive per capita growth.

However, I would caution against conflating a cyclical price spike with a structural barrier. Infrastructure-driven demand - power transmission, railways, defence, aerospace - is largely price-inelastic at the programme level. The 12 kg target by 2047 remains achievable if India invests in both upstream capacity and downstream competitiveness simultaneously. From MCX's perspective, a liquid futures market that helps the value chain hedge price risk is actually a critical enabler of that consumption ambition - it reduces the business uncertainty that otherwise holds back investment in aluminium-based manufacturing.

AL Circle: Electricity is produced and consumed entirely within India - unlike aluminium. How do you expect electricity futures to behave differently from metal contracts, and how do you see the electricity derivatives market evolving over the next 2-3 years?

Praveena Rai: Electricity is a uniquely domestic commodity, with prices influenced primarily by India-specific fundamentals such as seasonal demand patterns, weather conditions, fuel availability, renewable generation trends. Unlike metals, which are often impacted by global supply-demand balances, trade flows, and currency movements. Electricity futures are driven by weather and demand shift compared to metals, which typically move in broader inventory and macro-driven cycles.  This means electricity futures prices are expected to reflect domestic seasonal cycles and structural developments within the Indian power sector.

India’s annual power consumption is ~1,700 Million Mwh, reflecting the scale of the opportunity. With India targeting 500 GW non-fossil capacity by 2030, the need for sophisticated risk management tools will only increase. Over the next two to three years, we expect the electricity derivatives market to grow in line with the continued modernization of India’s power sector, rising renewable integration, and expanding participation from generators, discoms, industrial consumers, traders, and other market participants. As liquidity deepens, electricity derivatives can become an important pillar of India’s broader energy risk management framework.

Unlock key insights from leading companies and experts across the aluminium ecosystem with our e-Magazine - Mine to Market: Aluminium Producers & Manufacturers 2026