Nalco to cut aluminium cost by 25% after Utkal D block becomes operational

Opening of Utkal D block to cut aluminium making cost by $500 per tonne

State-owned National Aluminium Company (Nalco), which made windfall gains from booming metal prices at LME, is looking to improve its profitability further after a captive coal block allotted to it starts operation shortly.

With energy cost accounting for 40 per cent of the aluminium production cost, use of coal from captive mine is estimated to cut costs by a whopping 25 per cent with savings of $500 around Rs 35,000) per tonne of aluminium churned out at Nalco’s 0.46 million tonne smelter at Angul. Nalco was allotted two captive coal blocks — Utkal D and E — with a combined deposit of 200 million tonnes. Of these, the company plans to operate the Utkal D block by the end of this year or early next year.

“Most of the statutory clearances for the block are in place and it will be a game changer for the company”, said TK Chand, chairman and managing director, Nalco.

The opening of the block will reduce the coal purchase cost by half compared to Rs 4,000 per tonne spent at buying through e-auction. It may be noted 0.8 million tonnes of coal is required to produce one million units of power.

Most of the bonanza Nalco made in the recent hike in the LME prices was from the sale of alumina where the margins were more than 200 per cent with the company spending around $250 to make one tonne of alumina, said industry sources. Even as the contracts entered last month, Nalco sold alumina at a record $718 per tonne before the international alumina prices sobered down a little. Comparatively, the margins in aluminium have been lower and a below $2,000 per tonne price at LME has not been remunerative for the company’s aluminium operation with costs hovering around $1,950 dollars per tonne at present, said the sources.

In this backdrop, the $500 saving per tonne of aluminium will not only improve the margins of in boom period, but also give enough cushion for smelter unit’s profitability at bad times. Apart from access to captive coal, the proposed in-house production of caustic soda and steps to reduce bauxite mining cost are also expected to bring in substantial savings in aluminium production cost.

Nalco, which is the cheapest producer of alumina in the world, ranks as the second lowest cost producer of bauxite after a mine in Venezuela. “Our plan is to be the lowest cost producer of bauxite in the word. Steps are being taken to bring down bauxite raising cost by about a dollar per tonne through use of modern technology like trench mining and complete mechanisation. Similarly, Nalco’s caustic soda project in joint venture with Gujarat Alkalies at Dahej is scheduled to go on stream in first quarter of 2020. On both these fronts (bauxite and caustic soda), the aluminium production cost is likely to come down by another $45 per tonne impacting the bottom line positively.