Higher coal price forces Nalco to cut more capacity

Imported e-auction coal unsustainable to produce power for aluminium production

Union government-owned aluminium maker -- Nalco -- will be shutting down about 3-4% of its aluminium capacity over the next fortnight due to higher import and e-auction coal prices.

BL Bagra, director (finance), Nalco, said that the company had shut 60 pots last year which translated to about 7-8% of its capacity.

“Now, we are looking to shut down another 3-4% capacity as the imported coal and e-auction coal prices are unviable.”

Aluminium requires huge quantities of power which is generated by burning coal. Nalco gets close to 90% of its coal requirements from Coal India. However, close to 12% of Nalco's coal requirement is met through import and e-auction process, which is leading to higher production cost.

London Metal Exchange (LME) rates of aluminium have been hovering at around $2,000 per tonne for a couple of years. Nearly 60-70% of aluminium producers in the world are at a loss at this price.

“This is the reason a lot of companies have partly shut down their capacities and so has Nalco,” Bagra said, adding, “Last September, we had shut 90 pots but restarted 30 by March. So the other 60 pots remain shut even today. In percentage terms it comes to about 7-8%. We are considering to put some more pots out of service to make it 11-12%.”

Bagra said that to the extent of coal available from Coal India, at the present realisation, the company can still recover full cost. “The topline can increase without adding much to profits,” he said.

“So, we have decided to continue producing till coal from linkage is available without the help of the imported coal or the e-auctioned coal. The cost of power generation from these two sources comes to Rs 5.5 per unit which is unsustainable,” he said.

The company is looking to additional cuts likely in the coming fortnight. “This will leave us with full cost recovery in the smelter,” he said.

Nalco’s profits fell sharply in the second quarter ended September 30, 2012 because of  higher power costs. It hopes to correct the problem in the current quarter and expects to post better results.