Nalco offers discounts, avoids production cut

The National Aluminium Company (Nalco), India’s second largest producer of the base metal, avoided a production cut by offering discounts to its key clients that helped it boost sales and trim rising inventory.

The company, which maintains an average monthly inventory level of 5,000 tonnes, had stocks of 20,000 tonnes at the beginning of last month as demand for the metal dropped following the global economic slowdown.

“Discounts varied from client to client based on our relationship with them and the memorandum of understanding we have,” said B L Bagra, director-finance, at the government-owned base metal producer. Bangalore-based Jindal Aluminium is one downstream company that buys the metal from government-owned metal producer.
 

PROBLEM OF PLENTY

* The firm had stocks of 20,000 tonnes, more than the usual 5,000 tonnes, last month as demand fell

* The company had at least two price revisions in March to boost sales

* The decline in aluminium price prompted many producers to reduce output as the spot price was below the production cost

The company sold 36,000 tonnes of the base metal in March which helped it trim its inventory level to below 15,000 tonnes. It did not quantify the discount offered to its clients. Bagra did not specify the sales figure for earlier months, but maintained this is a “record monthly sale” by the company.

The company usually sells the metal at a premium of $40 to $80 over the London Metal Exchange (LME) price for the metal. The average price of the metal on LME in March was $1,338 per tonne. The company had at least two price revision in March to boost sales.

“The offtake by our clients from the public sector to meet up their budgetary allocation for the financial year-ending also helped us boost sales,” he said. Steel Authority of India is one of the public sector clients of the company which uses the metal in melting steel.

The price of the metal on LME dropped to $1,251 per tonne on February 23, 62 per cent lower than the all time high of $3,271 per tonne in July 2008. The metal is currently priced at around $1,500 per tonne on LME.

The decline in aluminium price prompted many producers, including the Vedanta Group-controlled Bharat Aluminium Company (Balco), to reduce output as the spot price was below the production cost.

The government-owned producer of primary aluminium, however, did not cut production. The company continued to sell about 60 per cent of its production, which are on long-term contracts and priced around $2,000 a tonne, while keeping the rest in warehouses.

The company had planned a production cut of over 30,000 tonne, to meet the challenges posed by the changed scenario, a highly placed executive had said last month. In an analyst conference call in February, Nalco said its cost of production is around $1,500 a tonne, while its annual production is about 350,000 tonnes.

The company is not expecting an impact of the recent Naxalite attack on its bauxite mines in Koraput district. The company has enough stock to manage the loss of two days closure of the mine due to attack, said a company official.