Input commodity inflation to keep Vedanta's aluminium making cost high

Pain from rising input costs is more for Vedanta than for Hindalco and Nalco, as it doesn't have captive bauxite resources; volume ramp-up hasn't helped either

An uptrend in the prices of key ingredients is set to exert pressure on Vedanta’s cost of manufacturing aluminium. 

Though a tad lower than its Q3 cost of $1,945 per tonne, Vedanta’s aluminium manufacturing cost is expected to be in the band of $1,850-1,900 a tonne in the January-March quarter or Q4 of this fiscal. 

“We have revisited our Q4 cost of production to be in the range of $1,850-1,900, as input commodity prices continue to be high; however, (this is) lower than Q3, due to the absence of one-off charges and anticipated better domestic coal situation,” Kuldip Kaura, chief executive officer of Vedanta Resources, said at the company’s recent conference call.

“The cost environment for the aluminum industry is a point of concern primarily due to higher coal costs. The fuel was ruling higher because of lower realisation from linkage coal, higher cost of e-auctions and GCV (gross calorific value) slippage. Other input commodities like caustic (soda) and CP coke were also up 35 per cent and 15 per cent, respectively, compared to Q2”, he added.

Vedanta’s aluminium making cost in Q3 stood at $1,945 per tonne, nine per cent up quarter-on-quarter on account of surge in prices of crucial inputs like alumina, calcined petroleum coke and coal tar pitch. The company is still importing around one million tonnes of alumina to feed its smelter operations especially the one at Jharsuguda where Vedanta runs a standalone facility and a smelting unit located in the adjacent SEZ (Special Economic Zoen) area. Both the smelter units combined have a production capacity of 1.75 million tonnes per annum.

Abhijit Pati, chief executive officer, aluminium (Jharsuguda), Vedanta Ltd did not respond to repeated phone calls or answer text message.

Compared with other producers like Aditya Birla Group controlled Hindalco Industries and state run National Aluminium Company Ltd (Nalco), the pain from escalating input costs is more for Vedanta. Unlike its peer producers, Vedanta is running without captive bauxite resources. Despite going for volume ramp-up, Vedanta has been unable to contain its cost of aluminium production. Vedanta is eyeing the top slot in aluminium production by the close of this financial year, upstaging Hindalco Industries. Vedanta in its conference call, has given a production guidance of 1.5-1.6 million tonnes of aluminium in this fiscal excluding trial production. For 2018-19, its aluminium production is projected to cross two million tonnes.

Higher production guidance for the next fiscal is on the premise of Vedanta commissioning its sixth production line at Jharsuguda. The company is also eyeing better production from its alumina refinery at Lanjigarh (Odisha) as it has been de-bottlenecked to run at its full capacity. The refinery’s debottlenecked capacity is two million tonnes per annum. Vedanta expects some softening in imported alumina prices and better availability of linkage coal to go for higher aluminium volumes.