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Vedanta steps up India plans despite setbacks

Kunal Bose / Kolkata 03 May 17 | 11:29 PM

Arguably in a flight of fancy, Vedanta Chairman Anil Agarwal said some time ago that India “will continue to have everything going in its favour to multiply its present primary aluminium capacity of 4.1 million tonnes (mt) several fold in the coming years."

What must have prompted Agarwal to make the statement, which took many in the industry and government by surprise, is the availability in great abundance of bauxite and electricity grade coal in the country. Not only the size of the two resources but their concentration in the eastern parts of the country, particularly Odisha, offers considerable logistical advantage to the existing and future producers of alumina and aluminium here.

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A combination of contemporary technology from Rio Tinto Alcan and transfer of bauxite from mines to refineries by way of cable belt conveyors bringing cost of transportation to nearly zero has made Hindalco’s newly commissioned 1.5 mt Utkal Alumina and National Aluminium Company (Nalco) among the lowest cost producers of smelter feedstock alumina in the world. Yet another major contributing factor to their cost effectiveness is the ownership of high quality bauxite deposits at Baphlimali by Hindalco and at the Panchpatmali hills by Nalco. Both the deposits are in Odisha, which with an estimated 1.846 billion tonnes (bt) has a share of about 55 per cent in the country’s bauxite reserves. 

As it would happen, the advantage of cost-free bauxite hauling from mine to refinery was denied to Vedanta Aluminium when unrelenting protests by local Dongria Kondh and Kutia Kondh tribes, with the civil society’s backing, led to the abandonment of opening of a 72 mt deposit at Niyamgiri hills. But ahead of that, the company built a 1 mt refinery at Lanjigarh. Undaunted by the setback, Agarwal, who believes India will emerge as a major aluminium production hub after China, will expand the Lanjigarh refinery to 6 mt. 

Fuelling optimism

Anil Agarwal

Vedanta is one case of hope triumphing over the agonising reality of it procuring bauxite from many places within the country and also from Australia and Ghana. China is buying a lot of bauxite from Vietnam after Indonesia put restrictions on exports. “We are not a buyer of Vietnamese bauxite which contains much reactive silica. We don’t have the facility unlike the Chinese to remove silica from the mineral," says Vedanta Aluminium CEO Abhijit Pati. The lack of captive bauxite mine puts Vedanta at a disadvantage of about $170 a tonne vis-à-vis its two peers, Hindalco and Nalco. “We, however, are able to make this good when we make primary aluminium because of the high smelting efficiency at our Jharsuguda plant and Vedanta’s proven acumen to buy auction coal at best possible prices at all times," says Pati.

Power alone contributes 35 to 40 per cent of aluminium production cost. This then underlines the criticality of “running coal-fired captive power plants efficiently with fuel procured as cheaply as possible" for the viability of smelter operation, says Pati. In this context is to be seen the positives of Hindalco winning through auctions two coal blocks each in Chhattisgarh and Jharkhand, and Nalco being allocated two coal blocks in Odisha with reserves of around 200 mt.

Besides the advantage of raw materials, forecast that the world’s fastest aluminium demand growth will happen in India creates the ideal conditions for future smelting capacity here. An industry report says between now and 2021, the country’s aluminium consumption will grow at an annual rate of 7.3 per cent to 4.4 mt from 3.3 mt. This compares with China’s likely aluminium use growth rate of 3.1 per cent during this period to 45.7 mt from 40.5 mt. Consumption of the silvery white metal in the rest of the world too will rise 3.1 per cent annually to 48 million tonnes from 42 million tonnes. Agarwal says: “Going ahead, everything will move to aluminium. From automobile, construction, aerospace and railway, aluminium will be the preferred metal to use." Aluminium replacing steel in particular in a growing number of applications makes Agarwal gung-ho about the metal.

This explains why undaunted by the challenges of obtaining bauxite from multiple sources and the continuing inability of Odisha Mining Corporation (OMC) to fulfil its commitment to supply the mineral in required quantities to Lanjigarh refinery, Agarwal goes on making big investments in aluminium here. As Jharsuguda has emerged as the country’s largest single location smelting centre with capacity close to 2 mt, Bharat Aluminium Company under the management of Vedanta since has seen its capacity doubled to 650,000 tonnes. Pati says “Vedanta has got a lot more aluminium under its sleeve."

Hope in sight

Some relief hopefully will come Vedanta’s way when OMC starts selling bauxite by October from a newly-opened mine at Kodingamali in the Koraput district with an estimated reserve of 80 mt. Even while the mine is developed principally to meet the requirements of Lanjigarh refinery, OMC will be required under the law to sell bauxite through open tendering only. So Vedanta will have to compete with others to get Kodingamali bauxite. Thankfully, both Hindalco, which has got two smelters in Odisha with a combined capacity of 573,000 tonnes, and Nalco with smelting capacity of 462,000 tonnes have rich bauxite deposits of their own in the state and are, therefore, unlikely to stake a claim to the Kodingamali material. But expect traders to participate in tenders for any bauxite sale.

What is likely to stand in the way of the industry growing capacity further is the tardy progress in exploration and readying deposits for auction. According to industry officials, Balada in Koraput south is the only bauxite deposit in Odisha that can now be auctioned. Hopefully, the new mineral exploration policy aimed at attracting participation of local and foreign groups will speed up the process of bringing onto the table auctionable deposits. Nalco with exportable surplus of about 1.2 mt of alumina, and also benefiting from recent allocation of 80 mt Pottangi bauxite deposit, is well placed to start planning for smelter capacity expansion to 1.062 mt at the same site at Angul.

After fully ramping up two new smelters and an alumina refinery, Hindalco Managing Director Satish Pai has rightly turned the focus on building new capacity in downstream products, requiring low capital investment. The target, according to Pai, is to double the production of value added products (VAPs) from the present about 350,000 tonnes in the next five years. As VAPs give better returns than primary metal in all situations, Vedanta and Nalco will also be introducing new alloys and products. This will also be one sure way to cut imports.

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