Vedanta cuts aluminium cost by 20% in Q4 amid coronavirus pandemic

At a time when the Covid-19 pandemic has sucked demand and pressured international prices, Vedanta Ltd has pruned its aluminium Cost of Production (CoP) by 20 per cent year-on-year (y-o-y) to $1451 per tonne.

For the full fiscal year FY20, aluminium CoP was down 14 per cent y-o-y to $1690 a tonne.

Reducing aluminium making costs augurs well for Vedanta amid a slide in prices of the white metal on the London Metal Exchange (LME). Aluminium retreated on the LME Tuesday, falling 0.8 per cent to $1593 per tonne. LME aluminium prices had rallied nearly 10 per cent for the past three weeks, touching the highest this Monday since March 20. According to forecasts by global consultancy CRU, global aluminium inventories are set to rise by 5 million tonnes (mt) to 16 mt, much of it in the non-LME registered warehouses by the end of calendar 2020, pressuring prices.

The company was able to achieve competitiveness in aluminium manufacture largely due to a ramp up in alumina production. In an investor presentation for FY20, Vedanta said it achieved a record production of 1.81 mt of alumina in FY20 at its Lanjigarh refinery in Odisha, an increase of 21 per cent. It was able to curtail alumina CoP by 15 per cent to $275 per tonne, helped by local bauxite sourcing that now meets half of the refinery’s requirement.

Vedanta has a long-term linkage arrangement with Odisha Mining Corporation (OMC) for sourcing bauxite. According to the agreement, 70 per cent of the bauxite mined by OMC at its Kodingamali mine is fed to the Lanjigarh refinery. Vedanta is also eligible to participate at bauxite e-auctions conducted by the state run miner twice a year.

In addition to enhanced local bauxite sourcing, Vedanta’s captive coal mine- Chotia - achieved full capacity of 1 mt. Assured coal supplies from internal sources help aluminium players cut costs. Aluminium smelting is a power intensive industry with the component accounting for 40-45 per cent of smelting costs. Containing costs has been a critical challenge for domestic aluminium producers as they have to grapple with intermittent disruption in coal supplies from Coal India Ltd (CIL) subsidiaries.

Apart from Chotia, Vedanta is banking on Jamkhani, a coal block it won at competitive auctions in Odisha, to sustain competitiveness in aluminium production. Endowed with 220 mt of deposits, the block promises long-term coal security for the company.

The company aims to commence mining from this Jamkhani block within a year of getting the requisite approvals from the state authorities. Vedanta initially aims to extract 2.6 mt per annum from the block.