India’s per capita aluminium consumption will double in five years, says B L Bagra, Director of government-owned National Aluminium Co Ltd. He talks to Kunal Bose and Dilip Satapathy on the outlook and plans. Edited excerpts:
There is apprehension that aluminium stocks are large enough to pull down prices when released.
Yes, taking advantage of low interest rates and warehouse charges, many funds have found it profitable to hold on to stocks. I think interest rates will stay where they are, in view of concerns about the US economy and buoyancy eluding European economies, except Germany. So, you will see large volumes of aluminium remaining warehouse-bound till at least the beginning of next year.
The average LME (London Metel Exchange) spot price is $2,200 a tonne against $1,800 a tonne in the same period of 2009-10. But LME stocks of over 4.3 million tonnes are indicative of supply staying ahead of demand. Any possibility of the LME price slipping below long-term marginal cost?
In the last three years, supply had stayed ahead of demand. New capacity keeps coming on stream and high-cost smelters shut in the wake of price collapse are returning to production. All this puts pressure on prices. Meantime, however, the long-term marginal cost has risen to $2,000 a tonne, driven by continuously rising input costs. Energy, in particular, is becoming so much more expensive everywhere, including China, the world's biggest producer and user of the metal. Yes, the price may travel below $2,000, but that will be for a short period. As for Nalco and Hindalco, we have the advantage of belonging to the lowest-cost quartile of the global industry.
World aluminium demand in 2009 slipped by 8.3 per cent to 34.3 million tonnes in an inevitable fallout of the recession. Many think demand this year will be up to 39 mt. Do you agree?
I accept this forecast. The automobile industry is doing remarkably well in Europe, China, India and many other places. That translates into good demand for aluminium. Cars are using more and more aluminium in components and in their body, for weight reduction and economy in fuel use. As for Asia, where infrastructure development is the priority, the principal aluminium demand drivers will continue to be construction and power. But as economies in this continent gain in sophistication and lifestyle changes, demand will also grow for can stock and foil stock.
All of you — Nalco, Hindalco and Vedanta — are chasing big capacity building targets, to a country total of 4.4 mt by 2013. Will it happen?
On completion of second phase expansion, Nalco now has smelting capacity of 460,000 tonnes at Angul (Orissa), to be further raised to 570,000 tonnes. We are also to build a 500,000-tonne smelter at a new site in Orissa. We can't do it at Jharsuguda on environmental grounds. But we have other sites in view and are waiting to hear from the government on land and drawing river waters. Hindalco and Vedanta also have major smelter capacity development plans, in Orissa and elsewhere. But all this is to be backed up by commensurate alumina refinery capacity and opening of new bauxite mines. There has to be patience on this front. So, a safe bet will be to take a capacity of 2.5 mt on ground by 2013.
Isn't there a disconnect that while India is recording a high GDP growth rate, the per capita aluminium use here remains only 1.3 kg? If the metal use does not go up substantially, you have a situation of domestic supply remaining perpetually ahead of demand. As we understand, the domestic market is a lot more paying than abroad. Is that a concern?
I think our per capita aluminium consumption will get doubled in the next five years. If you're saying five kg per capita use, then perhaps 10 years. Demand for the metal from the power sector will remain buoyant, as we will be seeing more and more aluminium use in the construction and transport sectors. Cans remain a low growth area and foil use is growing at a slow pace.
What is the plan on emerging as an independent power producer (IPP)?
We have a 1,200-Mw power complex as captive back-up for our Angul smelter. For an aluminium maker, success is underpinned by a smelter's ability to source power cheaply. Nalco is producing coal-fired electricity cost-effectively for over 25 years. So, we have the right credentials to now become an independent power producer. We are a power-deficit country and the sector offers an assured rate of return.
Till the government decides whether new coal block allotment will be on auction or allocation basis, the option for us is to do work with the ones in possession of undeveloped coal blocks. We are exploring the possibility of building power units with Orissa Mining Corporation and Orissa Power Generation Corporation. Between them, they have five coal blocks. Chief Minister Naveen Patnaik is supportive.
Nalco is also a bidder for the ultra mega power project in Orissa. Our likely partners, if we win the bid, are NMDC, Neyvelli Lignite, BHEL and IMFA. This will be a joint venture, where we will have majority ownership and management control.
Becoming an IPP is understandable, but why this attempt to get into nuclear power?
We have an initial agreement with Nuclear Power Corporation to build a power unit in a JV. What we don't know is the use of fusion material to produce heat to make the turbine rotate. We are familiar with the rest of the chain, starting from the turbine rotation point to power delivery at the consumption point. Our JV project will be at Kakrapar, near Gujarat's Surat. The nuclear power plant will have two units of 700 Mw each.
