In its first overseas foray, the state-run aluminium producer Nalco has lined up a plan to invest $2.8 billion to build a smelter and a captive power unit in either Iran or Oman, depending on where it will get the fuel cheaper. The 5 lakh tonne/year smelter will be fed on surplus alumina from its existing and proposed Indian refineries and will cater to the markets for value-added products, primarily from the automobile industries, in South Asia, Southeast Asia, Europe and the US, according to sources.
Nalco’s move comes at a time when the global aluminum stocks and margins are under severe pressure (LME aluminium prices have dropped 15% so far in 2015, weighed down by rising Chinese supplies and slow demand growth), but the company feels a strong medium-term demand growth would more than justify its massive capex plans in India and abroad.
Flush with “free cash reserves” of about R17,000 crore, Nalco reckons that the proposed smelter abroad could make it competitive against even Chinese aluminium producers known for their lower costs, enabled by captive power units.
According to Bloomberg Intelligence, China may add 3.9 million tonne of new smelter capacity this year, which will be 90% of the capacities being created by all countries combined.
Nalco chairman and managing director T K Chand confirmed to FE that the overseas project was very much on the company’s agenda but added that the company would consider various parameters, chiefly cheap availability of fuel (coal/gas) for the captive power plant, given that energy costs make over a third of aluminum production cost. Nalco has 2.27 million tonnes alumina capacity at present and with the expansions being planned in India and abroad, both through brown-field and green-field routes, its capacity is expected to go up by at least another 1 million tonnes by 2018-19.
India’s per capita consumption of aluminium at less than 2 kg is far behind average global level, not to speak of Germany’s 38 kg, the US’s 22 kg and China’s 17 kg. India’s consumption of aluminium has grown at a CAGR of 15% in the 5 years to 2014 and the domestic demand is bound to be buoyant in the medium-to- long term, given the massive infrastructure investments on the anvil in the country, analysts feel. According to Chand, though Nalco is one of the low-cost producers of aluminium globally, higher cost of power and freight rates make it uncompetitive against Chinese firms right now. Power costs could potentially be cheaper by 30% in both Oman and Iran, he said. A site in Indonesia was also being considered for the proposed smelter earlier, but due to the uncertainties over the country’s bauxite policies, that plan has more or less been dropped.
Even now Nalco exports a good chunk of alumina produced from its Odisha plant. The Indian aluminium industry is currently troubled by the twin onslaught of increased imports and meltdown in the prices of the metal. While 56% of the domestic aluminium consumption is being fed by imports, more than 2 million tonne domestic capacity remains unutilized.
Meanwhile, Nalco’s proposed one million tonne (Rs 6,260 crore) green-field alumina refinery in Gujarat, in association with Gujarat Mineral Development Corporation (GMDC) could be scaled down by half due to inadequacy of bauxite supply by the joint venture partner.
Meanwhile, Nalco has also pruned its proposed capital expenditure plan for the current fiscal. From the budgetary estimate of Rs 1,181 crore, it has already revised its capex to Rs 782 crore. The actual expenditure, till September this year, has been just Rs 70 crore. It has lined up capex of Rs 832 crore for FY17, Rs 3,215 crore for FY18, Rs 5,662 crore for FY19 and Rs 5,976 crore for FY20.