National Aluminium Company (NALCO) expects to start coal mining from its allocated Utkal-D and Utkal-E coal blocks towards the close of 2018-19. The commencement of coal mining from the two blocks would help scale down power cost for NALCO, thus enabling it to prune its cost of aluminium production. Typically, power as an input in aluminium making, contributes 40-45 per cent of the production cost and the steep cost of electricity was a dampener in NALCO’s aluminium operations.
Post the extraction of coal from its blocks, NALCO hopes to scale down its aluminium making cost by up to INR 500 per tonne. This would not only be a breather for NALCO but also help it to post profit from its aluminium business.
Despite being the lowest cost producer of alumina in the world, steep power cost was constraining NALCO’s ability to be cost effective in aluminium production. NALCO’s production cost of the hot metal hovers around USD 1,450 per tonne. On the contrary, Nalco’s private sector rival Vedanta reported an average aluminium production cost of USD 1,429 per tonne with its Jharsuguda smelter achieving even a lower production cost of USD 1,388 a tonne. Vedanta, despite the absence of captive lease and lack of captive bauxite sources, had succeeded in containing its aluminium making cost on the back of cost optimization measures and availability of power from group company owned power plant in the vicinity of its aluminium smelting complex at Jharsuguda.
The cost economics assumes significance at a time when NALCO is going for a ramp-up of aluminium making, both via brownfield capacity addition and creation of a new greenfield unit.
At its existing smelter at Angul which has a nameplate capacity of 0.46 MnT per annum (mtpa), NALCO is adding 0.5 MnT capacity per annum. The navratna company is also going for a new greenfield aluminium smelting unit at Kamakhyanagar in Dhenkanal district. The smelter with a proposed capacity of 0.6 mtpa is being pursued at an investment of INR 12,000 crore.
To secure power supplies for the smelter, NALCO has entered into a joint venture agreement with NTPC Ltd for a coal-fired power project with a capacity of 2400 Mw with an investment of INR 14,000 crore. The location chosen for this power plant is Gajmara, some 45 km from Kamakhyanagar, the site of the proposed smelting unit. NALCO has agreed to buy 80 per cent of the power from the 2400 MW project.
Presently, alumina, mainly alumina exports by NALCO have been the key driver of its profitability. Last year, NALCO raked in export earnings of INR 2,200 crore through alumina exports. Since aluminium making in the country was dearer for NALOC due to the steep electricity cost, the company chose to export the surplus alumina. Every year, NALCO produces about two million tonne of alumina of which nearly the half is exported. But, with NALCO opting for more value addition, its focus would be on conserving more alumina and limiting exports. In 2017-18, NALCO has aimed to augment aluminium output by 12 per cent as aluminium prices have firmed up and LME prices of the metal have touched multi-year highs. LME aluminium prices for the cash buyer were ruling at USD 1,850 per tonne (as on March 14, 2017).
Leave a Reply