Nalco simmers down its smelter as LME prices stay low

Sitting on rich resources of bauxite and coal, Odisha is an ideal centre to produce aluminium, the domestic demand for which is to continue to grow at an annual rate of at least eight per cent. Odisha has a share of 1.81 billion tonnes (bt) of the country's bauxite deposits of about 3 bt. The state also has coal deposits of 65.23 bt.

This will explain why besides the ideally integrated 81 per cent government-owned National Aluminium Co (Nalco), Hindalco and Vedanta are seeking major capacity growth in Odisha, braving many odds. Nalco chairman Ansuman Das says to what extent the Odisha-linked ambitions of aluminium makers, including his own company, is realisable will "depend on the opening of new bauxite mines after securing all statutory clearances. Equally important, aluminium should be accorded priority status like cement for allocation of coal blocks, to justify investments in highly capital-intensive smelters with backward and forward linkages."

Nalco operates a 1,200 Mw electricity complex to feed power to its 460,000 tonne smelter at Angul with "coal linkages" but without "coal blocks." No wonder, the company faces "intermittent constraints" in coal supply. Wisely, however, it has stopped using expensive imported coal.

Profit margins thinned by stubbornly low aluminium prices on the London Metal Exchange (LME) have led Nalco to apply brake on smelter capacity use, allowing it to stop burning high cost fuel of foreign origin. During 2012-13 when the average LME price was $1,975.60 a tonne in the face of rising input costs, Nalco, in an attempt to protect the bottom line from shrinking further, rested about 100 pots in the smelter.

In view of the LME cash price still ruling below $1,800 a tonne, aluminium production at Nalco continues to be reined in. Das is pursuing a strategy of increasing the output of smelter feedstock alumina, in which margins are better than in white metal. At metals consultancy firm CRU's recent aluminium conference in London, the consensus was that value in aluminium chain at this juncture was in the upstream bauxite, thanks to assertion of growing resource nationalism from Indonesia to Vietnam, and alumina and in rolled products in the downstream.

  Unlike Hindalco continuing to reap benefits from value-added rolled products and extrusions, Nalco has remained a primary producer of the metal meeting the requirements of secondary units giving shape to aluminium products. Without abandoning the role assigned to it, Das is now to lead Nalco through the value addition route, albeit in measured steps. In a joint venture with Power Grid Corp, Nalco will be building an aluminium alloy electrical conductor plant. At the same time, the company is taking a call, though not a day too soon, to set up facilities in the upstream for making caustic soda in partnership with Gujarat Alkalis & Chemicals.

Appointed chairman in July, Das moved fast to "revisit our corporate plan framed in 2009 with the objective of identifying the projects which could be given shape in a reasonable time instead of aimlessly pursuing one too many things. As we will largely stick to our knitting in pursuing growth, we will remain active in building renewable energy complexes. We are a big and efficient coal-fired power producer. So, any other form of energy, nuclear or renewable, is close to our core competency."

But the two projects that are to elevate Nalco to new heights relate to building a 500,000-tonne smelter backed by a 1,260 Mw power plant in Odisha's Sundargarh district at an investment of Rs 16,450 crore and a 1-million-tonne (mt) alumina refinery in Gujarat based on bauxite to be supplied by a state agency.

The significance of the Rs 5,500-crore Gujarat refinery project is in its sparing Nalco from going through the frustratingly long process of first identifying a bauxite deposit and then securing the host of clearances from state and central agencies for mine opening. In more than 30 years since shovelling of bauxite began on a big scale at Nalco's deposit at Panchpatmali hills of Koraput, the country has not seen the opening of a major bauxite mine. Some big deposits have been assigned to the other two aluminium groups but mines opening remains mired in controversy.

One group has put in place a 1-mt refinery and a 500,000-tonne smelter with adequate power back-up in Odisha. It, however, is running from pillar to post to procure bauxite and alumina to operate its plants at whatever capacity possible. What stops Nalco, which in 2012-13 exported nearly 944,117 tonnes of alumina, from coming to the aid of the beleaguered smelter?

"Our charter provides for use of our alumina to run our own 460,000-tonne smelter and export the surplus. Moreover, the logistics relating to rail rake movement from our refinery at Damanjodi to Vizag port favours alumina exports by us than selling it to another Odisha smelter," says Das. In view of his predicament in running the Angul smelter with linkage coal and that of a peer group without a bauxite mine, Das has made allocation of a coal block a precondition for building Sundargarh smelter. "We shall explore opportunities abroad if we don't get a coal block," he says. the Wanderlust forced on Nalco will, however, be a sad day for Odisha.