Faced with the rising costs of metal production and soften London Metal Exchange (LME) prices, Indian aluminium producers are ramping up focus on value added products to shore up margins. Aluminium prices on the LME have collapse for the cash buyer, exceeding the cost of production of Indian producers. After scaling multi-year highs in April last year on account of sanctions clamped on UC Rusal by the US Treasury, aluminium prices falling. Moreover, with the US lifting sanctions on Rusal and the withdrawal of production embargo on Norsk Hydro owned Alunorte alumina refinery, the markets have stabilised, recovering from the supply turmoil.
Dr. TK Chand, Chairman & Managing Director (CMD) of National Aluminium Company (NALCO) and President at Aluminium Association of India (AAI), expects LME prices to be in the range of $1,800-2,000 this fiscal. A World Bank report on commodities says aluminium prices dropped 5% in January-March of 2019 and are expected to drop 8% in the calendar year.
“The (aluminium) prices will still be a pressure point for the domestic producers. Due to high energy costs, our production costs are climbing. Producers now need to move up the value chain with thrust on medium to high value added products. Unless they get higher realizations, it will be difficult for them to survive. A lot of efforts are being made by Nalco, Hindalco, BALCO and Vedanta towards this end,” he said.
Chand pointed out that the consumption of valued added aluminium products will surge due to the government's focus on infrastructure, electric vehicles and high speed trains.
In view of the growing traction for value added downstream products, Nalco has forged a joint venture with defence PSU Mishra Dhatu Nigam Ltd (MIDHANI) for the production of special alloys.
“Our JV with MIDHANI will be named Special Aluminium Company. It has got the seal of approval from NITI Aayog. We are going for financial closure of this company. Funds will be raised through a mix of debt and equity in the ratio of 70:30. Also, we are going for a technology partner who can acquire up to 10 per cent stake in the joint venture,” he added.
The other major aluminium player, Hindalco, expects to remain profitable despite deflated LME prices on account of its integrated operations. Aditya Birla Group's Hindalco Industries had previously announced that the alumina brownfield expansion at Utkal and downstream ramp of its flat rolling mill at Hirakud, both facilities in Odisha, would continue to be its focus. Alumina expansion is underway with a capex (capital expenditure) of Rs 1,200 crore while downstream expansion is on the drawing board stage.