More than anything else, it is the cost of power that defines operational viability of an aluminium smelter. Depending on energy source and whether a smelter is backed by a captive power complex, electricity accounts for 30-50 per cent of aluminium making cost. Power is a relatively small cost component for other metals. Indian aluminium makers with linkages to coal mines but not ownership of coal blocks have time and again experienced irregular supplies, especially during monsoon months, forcing them to import and also buy the fuel through e-auction at a hefty premium.
S K Roongta, now heading Vedanta group’s aluminium business after doing a turnaround at SAIL and launching its Rs 72,000-crore expansion programme, sees irony in the country’s smelters finding an issue with coal supply and the escalating cost of energy when the country is counted among the leading owners of this mineral resource. At last count, India’s coal resources are approximately 277 billion tonnes (bt), including 66.3 bt in Orissa, which will have an increasing share of our rapidly growing aluminium smelting capacity.
Similarly, Jharkhand, Chhattisgarh and Madhya Pradesh all endowed with large reserves of coal, will also have a growing presence in the country’s aluminium map.
“Being so richly endowed with the resource, aluminium smelters should ideally find coal a low-cost commodity. But, because of the widening gap between demand and supply, we perforce have to import the fuel at a high cost. But coal imports could be restricted by promoting mining of coal for captive use, like by aluminium smelters, and also through merchant mining. Policies should facilitate allocation of coal blocks through transparent bidding. Our port, rail and road infrastructure is already stretched and moving imported coal from ports to merchant and captive thermal stations is a logistical challenge,” says Roongta. It certainly is not a happy situation that the country is importing annually 100 million tonnes (mt) of coal at a cost of around $10 billion. Moreover, imported coal commands a premium of up to 40 per cent over the local prices.
India, according to Roongta, being the repository of the world’s fifth-largest bauxite reserves, and 10 per cent of coal reserves remains one of the more attractive centres to make aluminium.
“When you have coal and bauxite in abundance, you as the producer of alumina (the intermediate chemical that is smelted) and aluminium can stay at the lowest end of the cost curve,” he says. In fact, the major portion of the aluminium industry here harnesses the resources in a way to be found in the lowest cost quartile of global production costs. Local aluminium making cost is to come down further, provided companies here come to own coal blocks to feed their captive power complexes with low cost fuel.
Aluminium groups here have come to realise that risk is involved in their building new smelters without first ensuring allotment of coal blocks. Balco, in which Vedanta has 51 per cent ownership through group company Sterlite, is at an advanced stage of commissioning a new 325,000-tonne smelter at Korba, to be backed by a 1,200 Mw captive power station.
The operation of the new smelter – Balco is now running a 245,000-tonne smelter – should be setting a new benchmark in aluminium making cost here, since coal for the power complex will be available from captive mines. For its three new aluminium ventures of 359,000 tonnes each in Orissa, Madhya Pradesh and Jharkhand, Hindalco has first underwritten coal supplies for captive power complexes through mining joint ventures with the likes of Tata Power and Essar Power. Nalco is keen to build a 500,000-tonne smelter in Orissa. But it will commit the investment, provided it gets a coal block.
Orissa, where coal and bauxite are found in proximity will be claiming the highest portion of Vedanta group’s investment of Rs 60,000 crore in aluminium. Not only are 1.7 bt of the country’s 3 bt of bauxite resources are in Orissa, but the mineral in the eastern state is much sought for its high alumina content and low traces of silica. “The smelting capacity at Jharsuguda in Orissa, now at 500,000 tonnes, is being expanded by 1.25 mt. We will start commissioning the new capacity next year,” says Roongta. As a result, the Jharsuguda smelter will become the world’s largest single site one much bigger in capacity than what Emirates Aluminium is creating at Taweelah in Abu Dhabi.
Roongta says, “Rapid urbanisation and growing use of the white metal in electricity, transport, packaging and construction will justify all the new aluminium capacity creation. Our per capita aluminium consumption at 1.5 kg is too low. Encouragingly, however, Indian aluminium demand is growing at a double-digit rate. Vedanta is committed to a sustainable nature and people-friendly growth of the entire aluminium industry value chain. ”
Aluminium demand growth is to get a boost with India set to spend $1 trillion in infrastructure development during the 12th plan. In the meantime, the Inter-national Aluminium Institute says India, with China and Brazil, will remain in the forefront of the metal use, to lift the global demand to 75 mt by 2020.
