Nalco expansion work right on track

State-run National Aluminium Company expects to complete work on expansion of its smelter capacity and increase alumina output as planned by the end of calendar 2008 at an investment of Rs 5000 crore, Chairman and Managing Director C. R. Pradhan said today.

The company will raise its alumina capacity to 2.1 million tonne per annum from the existing 1.57 million tonne, while the aluminium capacity will witness an increase of 115,000 tonne to 460,000 tonne per annum with the completion of the expansion plans.

"From January onwards production will start on the expanded scales," Pradhan told NewsWire18 in an interview.

The company is targeting to increase the capacity of its aluminium-alumina complex in Damanjodi, Orissa, by 525,000 tonne to 2.1 million tonne by December end this year.Also, the capacity of company's aluminium smelter in Angul, Orissa will be ramped up by 115,000 tonne to 460,000 tonne per annum, Pradhan said.

The Indian aluminium sector is characterised by large integrated players like Hindalco and Nalco. The other producers of primary aluminium included Indian Aluminium (Indal) (now merged with Hindalco), Bharat Aluminium Company(Balco) and Madras Aluminium Company (Malco) the erstwhile PSUs, which have been acquired by Vedanta-group's Sterlite Industries.

Consequently, there are only three main primary metal producers in the sector. India produced 1.03 million tonne of aluminium in April-January 2008, up about 8 per cent from 0.95 million tonne in same period last year.

Overseas acquisition
Pradhan said apart from domestic expansion, the largest aluminium producer in the public-sector had signed a memorandum of understanding with the government of Indonesia to set up a 250,000 tonne per annum aluminium smelter.

"We have signed the MOU last month and the smelter is going to be operational in around three years," he said. "We may expand it further to 500,000 tonne."

He said it would take a year to get approval for the project report and complete a feasibility study.

The company plans to invest about Rs 300 crore in setting up the smelter and a 1,250 MW power plant in Sumatra island of Indonesia.

On availability of coal for the power plant, he said the company planned to mine coal on its own.

NALCO has also been in talks with coal-rich countries like South Africa, Mozambique and Congo for its overseas expansion. Coal is the cheapest fuel for running power plants, crucial for aluminium smelter. Power accounts for 40 per cent of the total cost of making aluminium.

Aluminium prices
Aluminium prices have been on an upswing since the beginning of this year. The benchmark three-month aluminium futures on the London Metal Exchange""the world's largest non-ferrous metals bourse""have jumped 28.7 per cent since the beginning of this year. The benchmark three-month aluminium prices on LME Monday closed at $3,138 a tonne (about Rs 127,089), up $700 from Jan 2 this year.

"Aluminium prices are very high, beyond anybody's imagination..Sky is the limit," Pradhan said.

He said global aluminium prices would remain strong at least for the next one year.

Metal producing firms across the world undertake aggressive hedging to avoid losses because of fluctuating prices of metals. But Pradhan said the company was not looking at hedging as of now."We are not doing it so far, but are examining its prospects," he said. "Hedging is very risky that is why we are not doing it."

Profit outlook
Referring to the company's earnings, he said, "The profit of the company is going to be 'worse' this year when compared with last year."

The company had announced a net profit of Rs 330 crore for the last quarter (October -December) on January 29, down 42.5 per cent on year, on account of higher power generation costs and weak aluminium prices.

Dipping aluminium prices owing to rising LME warehouse stocks dragged NALCO's net profit, while a rising rupee pulled down sales during the quarter.

In Oct-Dec quarter, the company incurred Rs 42.86 crore additional cost on coal to run its power plant.

Speaking of the current situation Pradhan said, "Coal supply has improved domestically." Mahanadi Coalfields ""a subsidiary of Coal India Ltd. is currently supplying coal to the aluminium major.

Joint ventures
The Bhubaneswar-headquartered company is seeking a joint venture with domestic cement companies to use fly ash generated from its captive power plant.

Through the joint venture, the company will market cement-based products for both domestic and export market, and also to manufacture Pozzolana Portland cement, which is a cheaper alternative for making concrete. Around 40 per cent of the coal used in power generation to run aluminium smelters is turned to ash.

"Within three-four months the joint venture partner will be selected," Pradhan said. Nine companies, including Grasim Industries, Shree Cement, India Cements, and Ambuja Cements, had bid for the cement project, which will have an estimated capacity of 2 million tonne per year.

The company is also mulling a joint venture with BEML to manufacture aluminium rail wagons.

"The wagon designs are to be approved by RDSO (Research Design and Standard Organisation)," Pradhan said.

All across the world aluminium wagon and coaches are being used, and they are fuel efficient and rust resistant, he said.

He said aluminium prices were unlikely to ease in the near future as there are not many new players in the field and since it was a high energy consuming industry.