Nalco's alumina exports to halve in 3-4 years, to impact profit margins

Alumina exports by National Aluminium Company (Nalco) are set to halve over the next three to four years as the company looks at higher conversion to aluminium and value-added products.

Each year, Nalco exports around one million tonne of surplus alumina. Nalco's internal consumption of alumina is poised to go up as the navratna company is going for brownfield expansion of its aluminium smelter at Angul. Nalco is adding 0.6 million tonne capacity at Angul where its current rated capacity is 0.46 million tonne per annum (mtpa).

"If our new smelter comes up, it will consume 1.2 million tonne of alumina each year. In that case, Nalco's exports of alumina would reduce by 50 per cent in the next three to four years. Alumina exports, however, will not stop altogether as we are also expanding our alumina refinery capacity", said T K Chand, chairman & managing director at Nalco.

Alumina and not aluminium has been the key driver of Nalco's profitability over the years. Nalco being one of the lowest cost producers of alumina in the world, enjoys good margins on alumina exports as prices of the intermediate product are on an upswing. FOB alumina index was calculated at $390.43 per tonne Tuesday, marginally down from $393.36 per tonne the previous day.

In 2016, Nalco turned lowest cost producer of alumina in the world with a manufacturing cost of $190 per tonne. Nalco's cost was significantly cheaper compared to the global benchmark cost of $220-230 a tonne. This came on the back of Nalco's cost curtailment and productivity improvement. Nalco's efficiency in extraction of alumina hydrate and focus on cost economics by raising volume of output contributed to the fall in alumina manufacturing cost.

But, with alumina being a major contributor to Nalco's profits, its margins are expected to come under pressure.

"Alumina business fetches better margins for Nalco than all other verticals of its operations. Any cut in alumina exports is bound to impact its profitability. But, with Nalco planning to diversify into value-added products and expanding its wind power portfolio, it would help offset margin pressure. Also, value-added products can bring in higher margins compared to aluminium ingots", said a metals analyst.

Nalco has embarked upon a new business plan to counter the vagaries in metals business. The new business model envisages diversification into green energy, IPP, merchant mining and setting up soda plant- areas that are immune to the downturn in the metals market.

"We are building our wind power portfolio as this segment is consistently contributing to our profits. Nalco has 198 Mw wind power capacity and an additional 25 Mw is under construction. It is Nalco's constant endeavour to ensure that profitability is always maintained", Chand said.

Nalco is also focusing on cost reduction and value-added products to boost margins. The aluminium company hopes to start mining from its captive Utkal-D coal block from this year. Captive coal supplies would help Nalco trim aluminium making cost by about Rs 500 per tonne.

The company also plans to set up a facility for high-end aluminium products. The project may come up at the aluminium park at Angul or somewhere in the vicinity. That apart, Nalco is forging a joint venture with two other central public sector undertakings- Mineral Exploration Corporation Ltd (MECL) and Hindustan Copper Ltd (HCL) to explore acquisition of 12 strategic minerals abroad. These minerals are likely to be blended with aluminium to form high-end alloys to cater to future applications.