At a time when aluminium prices on the London Metal Exchange (LME) have entered the bearish zone, hurting realisations of producers, Vedanta Ltd has pruned the cost of production (CoP) by 10 per cent during the September quarter of this fiscal.
Vedanta's aluminium CoP in the quarter stood at $1,852 per tonne. LME prices of the silvery white metal stood at $1,756 per tonne (as on November 14) for the cash buyer. At this price point, 10 per cent of the global aluminium smelters are incurring cash losses.
During the first half or April-September of FY20, Vedanta's aluminium CoP was even lower at $1,810 per tonne, down nine per cent year-on-year (y-o-y) from $1,990 in the comparable period of last fiscal year, the company said in an investor presentation. Vedanta's near term target is to reduce aluminium CoP to $1,500 per tonne.
Vedanta could achieve cost efficiency in aluminium on the back of higher production from its Lanjigarh alumina refinery in Odisha as well as enhanced availability of coal from linked sources and its captive supplies. Production at Lanjigarh refinery was up 18 per cent y-o-y in Q2at 0.41 million tonnes (mt). Cost of alumina making reduced by 18 per cent y-o-y to $293 per tonne. Also, Vedanta has started receiving alumina supplies from Emirates Global Aluminium (EGA). The Anil Agarwal controlled Group had inked an agreement with EGA for importing four million of the raw material each year. The bauxite will be sourced from mines in Guinea where EGA has stakes. EGA’s wholly-owned subsidiary Guinea Alumina Corporation (GAC) is building a bauxite mine and associated export facilities in Guinea, in one of the largest greenfield investments in the country in the past 40 years.
Presently, local bauxite sourcing is meeting 50 per cent of Vedanta's requirement. As per a long-term linkage agreement inked with the state government owned Odisha Mining Corporation (OMC), 70 per cent of the bauxite ore excavated by the corporation from its commercial mine at Kodingamali is supplied to Vedanta's Lanjigarh refinery. That apart, Vedanta can also participate at bauxite auctions organised by OMC twice a year. Moreover, the easing of international alumina prices to the level of $300 per tonne is helping the company since it imports significant volumes of the intermediate product.
On coal initiatives, Vedanta's captive coal mine- Chotia is on course to achieve its peak rated capacity of one million tonne per annum (mtpa). That apart, Vedanta plans to ramp up supplies from linkages through participation in Tranche V and VI of coal auctions. It is targeting coal security of 90 per cent, up from 72 per cent now.