 "Time ripe for Nalco to raise production?")
A public sector undertaking (PSU) is under compulsion to increase production year-on-year, irrespective of the state of the market. Braving this, National Aluminium Company (Nalco) Chairman Ansuman Das kept 335 of the 960 pots at its smelter idle during 2013-14. As a result, production stood at 316,000 tonnes, against 403,000 tonnes in 2012-13 and the all-time high of 444,000 tonnes in 2010-11. The production, however, finds justification on London Metal Exchange (LME) prices remaining stubbornly low last year and India recording 'negative growth' in aluminium demand. At one point last financial year, aluminium prices fell below $1,700 a tonne, leaving swathes of global smelting capacity unviable.
The main cost component of aluminium production is power. Nalco can restrict the share of energy in its total production cost to 32 per cent by using "mostly linkage coal" for power generation. With the company seeing futility in running its captive power plants with imported and auctioned coal, both much more expensive than linkage coal procured from the Mahanadi coal fields, power production fell to 4,989 million units in 2013-14 from 6,076 million units the previous year. Production discipline at smelter and power plants lifted Nalco's net profit by Rs 49 crore to Rs 642 crore.
How did Das manage to get workers at the Angul plant to agree to a cut in output, which made them forego portions of production-linked monetary rewards? A company official says, "The task was daunting. But Das decided to take the bull by the horns. He met workers and convinced them as long as global aluminium prices remained low, the Nalco smelter should use electricity generated only through linkage coal. Burning expensive imported coal to generate power and chase metal production would create a no-win situation for us. Workers found the logic convincing."
Das says, "The aluminium scene has changed for the better. The industry expects major capacity resting in and outside China and improved outlook for automobile, house building and packaging sectors will support aluminium prices at current levels. It is only natural that the metal price improvement will lead Nalco to consider whether more smelter production by stepping up electricity generation using non-linkage coal at this stage will prove bottom-line enriching."
This year, the aluminium sector outside China will decommission 1.5 million tonnes (mt) of smelting capacity. Closure of about three mt of high-cost and environment-damaging capacity in China, following an order from Chinese President Xi Jinping's office, will make the market balanced in that country. This is despite the higher-than-expected commissioning of new cost-effective capacity in the Xinjiang and Shandong provinces. Thankfully, the fact that Chinese aluminium production has risen 14 per cent in the first two quarters of 2014 to 13.448 mt on a year-on-year basis will not make that country an aggressive exporter of either primary metal or semis. For long, China has been discouraging the export of primary aluminium by charging a 15 per cent duty. Das says domestic consumption growing 14 per cent annually will ensure any incremental production being used in China itself.
Like Hindalco and Vedanta, Nalco wants to own smelter capacity of one mt. Das is firm the PSU will ideally build the second smelter in Odisha, provided it is allotted large coal deposits to produce "low-cost power. The alumina Nalco is exporting could be the feedstock for a 500,000-tonne smelter. To justify local use of alumina, we need ownership of coal mines. The deciding factor is power cost". Das argues India has large bauxite and thermal coal resources to emerge as a major aluminium production centre. The Indian aluminium sector has a capacity of 3.6 mt. From here, smelter capacity growth will depend on aluminium groups securing access to new bauxite deposits and coal blocks. "There has to be special dispensation for aluminium in coal block allocation," says Das.
The main cost component of aluminium production is power. Nalco can restrict the share of energy in its total production cost to 32 per cent by using "mostly linkage coal" for power generation. With the company seeing futility in running its captive power plants with imported and auctioned coal, both much more expensive than linkage coal procured from the Mahanadi coal fields, power production fell to 4,989 million units in 2013-14 from 6,076 million units the previous year. Production discipline at smelter and power plants lifted Nalco's net profit by Rs 49 crore to Rs 642 crore.
How did Das manage to get workers at the Angul plant to agree to a cut in output, which made them forego portions of production-linked monetary rewards? A company official says, "The task was daunting. But Das decided to take the bull by the horns. He met workers and convinced them as long as global aluminium prices remained low, the Nalco smelter should use electricity generated only through linkage coal. Burning expensive imported coal to generate power and chase metal production would create a no-win situation for us. Workers found the logic convincing."
Das says, "The aluminium scene has changed for the better. The industry expects major capacity resting in and outside China and improved outlook for automobile, house building and packaging sectors will support aluminium prices at current levels. It is only natural that the metal price improvement will lead Nalco to consider whether more smelter production by stepping up electricity generation using non-linkage coal at this stage will prove bottom-line enriching."
This year, the aluminium sector outside China will decommission 1.5 million tonnes (mt) of smelting capacity. Closure of about three mt of high-cost and environment-damaging capacity in China, following an order from Chinese President Xi Jinping's office, will make the market balanced in that country. This is despite the higher-than-expected commissioning of new cost-effective capacity in the Xinjiang and Shandong provinces. Thankfully, the fact that Chinese aluminium production has risen 14 per cent in the first two quarters of 2014 to 13.448 mt on a year-on-year basis will not make that country an aggressive exporter of either primary metal or semis. For long, China has been discouraging the export of primary aluminium by charging a 15 per cent duty. Das says domestic consumption growing 14 per cent annually will ensure any incremental production being used in China itself.
Like Hindalco and Vedanta, Nalco wants to own smelter capacity of one mt. Das is firm the PSU will ideally build the second smelter in Odisha, provided it is allotted large coal deposits to produce "low-cost power. The alumina Nalco is exporting could be the feedstock for a 500,000-tonne smelter. To justify local use of alumina, we need ownership of coal mines. The deciding factor is power cost". Das argues India has large bauxite and thermal coal resources to emerge as a major aluminium production centre. The Indian aluminium sector has a capacity of 3.6 mt. From here, smelter capacity growth will depend on aluminium groups securing access to new bauxite deposits and coal blocks. "There has to be special dispensation for aluminium in coal block allocation," says Das.