Each year, the company imports upwards of two million tonnes of alumina to power its smelters at Jharsuguda (Odisha) and Korba (Chhattisgarh). The company leans on foreign supplies as it lacks captive bauxite resources to make sufficient alumina. Vedanta also banks on imported bauxite to feed its alumina refining unit at Lanjigarh, installed at the foothills of Niyamgiri hill range in Odisha.
Vedanta has firmed up plans to ramp up its Lanjigarh capacity to six million tonnes per annum (mtpa). The expansion, estimated to cost Rs 64.83 billion is set to happen in a staggered manner. In the first phase, the capacity will be expanded to four mtpa. The refinery's de-bottlenecked capacity stands close to two mtpa now. The refinery scale up is expected to lessen Vedanta's dependence on imported alumina and thus, enabling the company to cut its aluminium making costs.
“Bauxite supplies from EGA will start flowing from August 2019. We have an agreement with them for drawing four mtpa each year from Guinea. In addition, we have a long-term linkage with OMC to draw 250,000 tonnes from their Kodingamali mine. Assured bauxite supplies will keep our supply chain stable and replace imported alumina. Imports are expected to taper to the level of 0.5 million tonnes somewhere in the middle of calendar 2020”, a senior Vedanta Ltd executive said.
A major cut in alumina imports will make Vedanta's aluminium cost competitive, he reasoned. At present, Vedanta's aluminium smelting costs are hovering around $2,000 a tonne in line with the production costs of its peers, National Aluminium Company (Nalco) and Hindalco Industries. But unlike other primary producers, Vedanta is not fed by captive bauxite mines, which poses a challenge to contain its metal costs.
At the end of FY18, Vedanta emerged to beome the biggest producer of primary aluminium with an output of 1.7 million tonnes. The Anil Agarwal-controlled Group is eyeing a production of 4-4.5 million tonnes of aluminium by FY21.
With a focus on structural cost reduction, Vedanta aims to prune its aluminium making cost to $1,500 per tonne, down from $2,018 in Q2 of this fiscal. The phased cost reduction will come on the back of enhanced coal security, ramp-up in captive alumina output, streamlining of bauxite sources and other strategic steps like shifting logistics from road to rail, ongoing improvement in power plant operating parameters and forging partnerships with key suppliers for long-term carbon contracts.
Vedanta expects 3.2 million of additional coal linkage at Tranche IV auctions. Coal mining has commenced from its captive block at Chotia in Chhattisgarh.
To stave off vagaries of fluctuating input costs, Vedanta is aiming at upstream integration. It has proposed to install a caustic soda production unit at Dhamra with an estimated investment of Rs 65 billion. This proposal, too, has got the seal of approval from the Odisha government.
Though upstream integration, Vedanta plans to contain its alumina production cost which escalated to $358 per tonne in Q2 led by cost push factor of ingredients like coal and caustic soda.