2026 brings Vedanta’s aluminium raw material security to a crossroads

Vedanta Limited, the largest aluminium producer of India, is attempting to secure reliable bauxite supplies to support its core business amid regulatory delays, legal proceedings and resistance from local communities. For the upcoming months, the outcome of these parallel challenges will play a critical role in maintaining the cost structure and competitiveness of the company in the aluminium industry. 

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Delays and grassroots troubles at Sijimali mine

In early 2023, Vedanta attained mining rights for the Sijimali bauxite mine in Odisha, positioning it as the company’s first captive bauxite mine in the state. The mine was expected to begin operations by Q3 FY25, but the project was reportedly opposed by local residents and legal scrutiny regarding the legitimacy of public approval, resulting in lagged progress. Although the Orissa High Court later disposed of the case, continued protests were reported. 

Regulatory uncertainty furthered the delays. In August 2025, the Central Government declared the Stage 1 forest clearance (FC1) of the project on hold, voicing concerns about local resistance. Momentum returned at the end of the year, when FC1 approval was granted on December 31. 

While the mine still needs environmental clearance and Stage 2 forest approval (FC2), Vedanta anticipates its operations to commence by the end of FY26, while analysts show scepticism about the narrow timeline.

Simjali’s importance, Lanjigarh’s expansion and supply chain pressure

The Sijimali mine has essential strategic importance. It is expected to hold 311 million tonnes (approx.) of bauxite reserves and is designed to produce 9 million tonnes per annum (MTPA). It can considerably reduce Vedanta’s dependence on external suppliers. 

Currently, bauxite is processed at the Lanjigarh refinery in Odisha, which previously depended on third-party vendors. Currently, most of its supply comes from Odisha Mining Corporation (OMC), supplemented by imports. Vedanta plans to source 5 million tonnes from OMC in FY26, the balance to be met through overseas purchases.

The Lanjigarh refinery itself is being expanded, its alumina capacity having starkly increased from 2 MTPA in FY24, targeted to rise from 5 MTPA to 6 MTPA by FY28. Alumina produced at Lanjigarh is used to feed Vedanta’s aluminium smelters at Jharsuguda and Bharat Aluminium Company (BALCO). These two have a collective capacity of 2.4 MTPA, targeted to increase to 3.1 MTPA by FY28 through efficiency upgrades. 

Since around 4 tonnes of bauxite produce one tonne of aluminium, captive supply from Sijimali would significantly lower exposure to volatile spot markets. It has become a more pressing concern with Vedanta’s contract with Emirates Global Aluminium, as importing around 3 million tonnes of bauxite annually from Guinea fell through due to the suspension of EGA’s mining concession.

Legal dispute and financial stakes

Vedanta’s ongoing legal dispute with OMC regarding bauxite pricing has aggravated the uncertainty. As per a long-term agreement between the two bodies in 2019, Vedanta would obtain bauxite at INR 673 (USD 7.45) per tonne, with a clause requiring it to pay any price difference discovered in future auctions. In August 2020, OMC conducted an auction with a floor price of INR 1,707 (USD 19) per tonne but received no bids. Later, it sent a notice to Vedanta demanding INR 2.8 billion (USD 31 million). 

The issue reached the Orissa High Court, which declared supplies to continue at a provisional price of INR 1,000 (USD 11) per tonne. Since then, according to the company, at subsequent auctions the prices have been as high as INR 2,957 (USD 32.75) per tonne. A crucial hearing was scheduled for January 12, and an unfavourable ruling could sharply raise Vedanta’s raw material costs.

Aluminium, the largest profit contributor to the group, accounted for an estimated 45 per cent of Vedanta’s INR 223.6 billion (USD 2.47 billion) first-half EBITDA. In a note dated December 16, Kotak Institutional Equities estimated that margins could improve to USD 1,210 per tonne by FY28, from USD 943 per tonne in the first half of FY26, driven by higher captive sourcing and increased output, that is, assuming regulatory and legal hurdles are resolved. 

Image source: https://www.alcircle.com/

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