 "A bird flies by the Vedanta office building in Mumbai")
For Vedanta, keeping to its projected cost seems a challenge tough to negotiate given its dependence on coal-based power. This is unlike global peers such as Rusal, Rio Tinto Alcan and Norsk Hydro, who exploit cheap hydro power to prune production cost.
Aluminium smelters with the lowest production cost are concentrated in the Persian Gulf, Russia, Canada, Iceland and South Africa where manufacturing cost is in the range of $1,100-1,450 a tonne.The Maaden smelter in Saudi Arabia, where Alcoa holds 25 per cent stake is the most cost effective smelter with a cost of $1,050-1,100 per tonne.
"At below $1,400 a tonne, Vedanta will offer a very competitive cost in line with the global producers and even lower than Alcoa whose average cost is above $1,400. But the fluctuating LME (London Metal Exchange) prices and possibility of hike in coal prices during monsoon may make it difficult for the company to sustain its projected price point. Also with global alumina prices moving up, Vedanta will find the gong touch since they don't have captive bauxite", said an analyst.
LME aluminium prices (for cash buyers) have now declined to $1,540 after breaching the $1,600 mark.
Abhijit Pati, chief executive officer (aluminium), Vedanta Ltd could not be reached for comments.
In Vedanta's business review, group Chief Executive Officer Tom Albanese has estimated the hot metal cost at below $1,400 per tonne while estimating the alumina production cost at Lanjigarh refinery at $250 a tonne in this financial year.The outlook for aluminium production is pegged at 1.2 million tonne (mt) this fiscal, up from the record production of 0.93 mt which Vedanta clocked in last financial year. Its total aluminium capacity from Jharsuguda and Balco smelters (in Chhattisgarh) stands at 2.3 million tonne per annum (mtpa).Vedanta has already initiated capacity ramp of the Balco smelter and its second smelter (of 1.25 mtpa capacity) at Jharsuguda lying within the SEZ (Special Economic Zone) area.
Vedanta's average cost of aluminium production in 2015-16 was $1,572 a tonne but in the last quarter, production cost crashed to $1,431. At Jharsuguda smelter, the cost of production (COP) stood at $1,397 a tonne while the Balco smelter reported COP at $1,489 in the January-March quarter. Lower COP in the last quarter was driven by lower alumina and power costs and cost efficiencies.Vedanta focused on more valued added products in the last quarter for higher realisations as ingot premium remained low at $134 a tonne.
Vedanta hopes to keep its aluminium production cost low by using power from its own 2,400 Mw (4x600 Mw) coal-fired plant in the vicinity of its Jharsuguda smelter.The company has got a favourable order from the state power regulator here to use up to 1,800 Mw power while the first unit (600 Mw) is dedicated to the state grid.
A Wood Mackenzie report pegs the share of energy at 38 per cent to overall aluminium production cost. The share of alumina is also 38 per cent followed by raw material and labour at 11 per cent and five per cent respectively.
Globally, production cost of aluminium smelters is falling since 2012 with the implementation of new and cheaper technologies, lower electricity consumption and higher efficiency.
Norway-based Norsk Hydro has lowered production cost to below $1,400 a tonne in the beginning of 2016, down from $1,600 a tonne in 2014. Alcoa's costs have also gone down to around $1,600 per tonne.
