Live Markets »News & Advice»Market News»Market News Details
Market News Details
Back

Coal shortage, scrap imports worsen price fall pain for aluminium industry

Aditi Divekar/Mumbai 06 Dec 18 | 01:54 PM

A shortage of coal, coupled with a shortfall in rail rakes, is significantly pushing up production costs for domestic primary aluminium manufacturers. The cost of power accounts for 45 per cent of the total cost for the industry.  

Amid falling prices of aluminium and pressure to keep costs low, cheap scrap import has been breaking the industry's backbone, according to a leading aluminium company official.  

Related Stories

    No Related Stories Found
Widgets Magazine

The official of a large aluminium producing company said that they had seen price levels of $1,900 per tonne for aluminium earlier, too. However, he added, raw material supply and logistical issues were never a problem and these issues were making the fall in price look more painful.   

"We have large power plants that are lying idle due to raw material supply and logistics issues. Due to this, our costs have gone up by more than 20 per cent, making operations difficult for us," a senior official with one of the primary aluminium producers told Business Standard.

ALSO READ: Phasing out coal power would benefit Indian consumers, taxpayers: Study

Aditya Birla Group's Hindalco Industries, Anil Agarwal-led Vedanta Ltd and state-owned National Aluminium Company Ltd are the three major primary aluminium producers in the country. 

Their combined annual output is four million tonnes and can cater to the entire domestic market, where consumption is usually 3.1-3.6 million tonnes. Excess production is exported by these companies.

In a bid to reduce the country's import bill and meet the increasing power demand, Coal India has diverted increased quantities of the commodity to power plants, leaving non-power consumers such as the aluminium and cement industries parched for raw material, since the past six to eight months. Rail rakes have also been pulled out from ports and mine locations, leading to logistical issues for non-power consumers in transporting their raw material, said industry officials.  

ALSO READ: Primary aluminium exports jump 21% in H1, but producers hit by import surge

"Currently, we are importing coal and also buying power from outside. The impact of this shortage will wary from producer to producer depending on mines they have and access to coal," explained the official. 

The domestic aluminium industry is going through this rough patch at a time when global aluminium prices have dropped below $2,000 per tonne in November, from about $2,500 per tonne in April.   

"Market has seen the levels of $1,900 per tonne for aluminium earlier, too. But raw material supply and logistical issues were never a problem and this issue now is making the price fall look more painful," the official added.

That's not all. While domestic manufacturers struggle to keep their cost of production at reasonable levels amid falling global prices, increased imports of scrap due to the ongoing trade wars and sanctions is yet another hurdle the growing industry is facing. 

ALSO READ: Import surge chokes top line of aluminium companies in Q2 of FY19 

The low import duty on aluminium scrap at 2.5 per cent has led to an increase in imports, said a CARE Ratings report. Cheap imports of aluminium scrap are lowering the market share of domestic producers, it added.

India imported aluminium scrap from the United States of America (15 per cent), the United Kingdom (13 per cent), the UAE (10 per cent), Saudi Arabia (10 per cent), Australia (seven per cent), the Netherlands (five per cent), Hong Kong (three per cent) and South Africa (three per cent) during April-September, said the report.

"The aluminium industry is bleeding from all sides. We (industry) have neither protection nor independent power supply. Such a scenario will discourage investments and capacity expansions in the aluminium industry despite strong demand outlook," said the official.

The per capita consumption of aluminium in India is 2.6 kg, as compared to the global average of 11 kg and 26 kg for China. This indicates a strong growth potential for the industry in the domestic market. 

ALSO READ: Govt mulls duty hike on aluminium after industry raises alarm over dumping 

At present, Chinese aluminium companies get power at subsidised rates. China is the world's largest producer and consumer of aluminium. Some other countries allow their aluminium industry to use hydropower supply, which is cheaper compared to coal. None of these benefits are offered to the domestic aluminium industry at present.  

Investments have been made in this sector estimating that raw materials will be available at reasonable rates and in a sustainable and secure manner. No one will put up an industry if coal is stopped in this manner, said industry officials.

Vedanta has received approval to ramp up its Lanjigarh alumina refinery in Odisha from 1 million tonnes to 6 million tonnes at an investment of Rs 64.9 billion. Hindalco's plan to expand its aluminium flat-rolled products unit at Lapanga, too, got cleared. The project would come up at an investment of Rs 50 billion. Nalco has received approval to spend Rs 55.2 billion on a mega downstream aluminium complex at Kamakhyanagar near Dhenkanal.   

Widgets Magazine

Sensex

Company Price Gain (%)
Bharti Airtel318.805.32
Yes Bank180.353.23
O N G C146.952.58
NTPC143.651.84
Asian Paints1,340.051.51

Poll

Currently No Poll Available.

Online Portfolio

You can create Online Portfolio here using the below button.

Widgets Magazine