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Mounting input costs rattle aluminium producers Vedanta, Hindalco, Nalco

A sharp increase in input costs has eroded gains from buoyant prices on LME

Jayajit Dash  |  Bhubaneswar 

Vedanta, Nalco could change the way aluminium is used

For the country’s top three aluminium producers – Vedanta, and National Aluminium Company (Nalco), the challenge to contain the cost of metal production seems to have become more formidable now.

The spiralling prices of key ingredients in aluminium making – from alumina to coal, coal tar pitch and caustic soda – has rattled the At the end of December 2017, the soaring prices of these key inputs had a total impact of $744 per tonne (year-on-year) on the aluminium production cost. This has negated the gains from aluminium prices on the London Metal Exchange (LME) strengthening from an average $1782 last financial year a tonne to $2,000 a tonne in 2017-18 (till November).

According to data from the Aluminium Association of India (AAI), alumina prices have gone up by 18 per cent over the past 12 months – from $271 to $400 per tonne – while the costs of imported coal and linkage coal have moved 62 per cent and 18 per cent, respectively. Prices of coal tar (CT) pitch and calcined petroleum (CP) coke have had impacts of $35 and $95 per tonne, respectively, on aluminium production.

Mounting input costs rattle aluminium producers Vedanta, Hindalco, Nalco

The ballooning input costs are already showing up in aluminium-making costs of these The overall increase in the production cost is more than 30 per cent on an average; the aluminium-making cost is up by $514 per tonne. The increase in cess and duties on coal, electricity duty, renewable power obligation and CP coke in the past three-four years have led to an increase of more than 10 per cent in the aluminium production cost. At the current output of three million tonnes per annum (mtpa), the annual impact on aluminium producers is to the tune of Rs 30 billion. If the producers run at the full-rated capacity of four mtpa, the impact could be Rs 40 billion.

“The LME price outlook for aluminium is bullish, but input costs are a pain for the producers. Some of the key inputs have seen sharp price hikes, mainly due to capacity closures in China, where pollution control remains a priority. In 2018, the key challenge for aluminium makers would be containing costs,” CMD and AAI President T K Chand had told Business Standard in an earlier conversation.

The pain seems to be more for Despite going for a volume ramp-up, Vedanta’s aluminium production cost was 22 per cent higher over a year ago at $1798 per tonne. The company attributed it to higher domestic coal costs due to coal shortages and appreciation of the Indian rupee vis-a-vis the US dollar. A source at said, “We expect our aluminium production cost to mount further to $1,850-1,900 a tonne due to challenges related to coal and other input commodity inflation.”

The other key producer- Aditya Birla Group-owned has admitted in its investor presentation that a stronger rupee and an increase in input costs have moderated the gains from a surge in aluminium prices on the LME.

With input costs hardly showing any signs of easing, is focusing on backward integration. already has a joint venture with Gujarat Alkalies & Chemicals Ltd, a Gujarat government company, to set up a caustic soda plant at Dahej with a cost of Rs 18 billion. It is considering setting up another caustic soda plant within the planned PCPIR (petroleum, chemicals & petrochemicals investment region) hub at Paradip. also has an agreement with steel PSU Neelechal Ispat Nigam Ltd (NINL) to set up a CT pitch plant.

According to AAI, the Indian government needs to take cues from China and West Asia, which support their aluminium producers through subsidies on power and tax sops. In China, the aluminium smelters get power tariff subsidies of $200 a tonne on aluminium production costs, 13-15 per cent export tax rebate on semi-fabricated aluminium products, and total waiver of import taxes on alumina and bauxite. Most of the smelters in West Asia are government-owned and enjoy preferential natural gas allocations at lower prices.

First Published: Thu, January 25 2018. 22:35 IST