Aditya Birla group’s company expansion plans are still entirely focused on the aluminium and alumina business, where the company embarked on a $5.5 billion capital expansion plan in 2009. As part of this, it started work on new projects in Madhya Pradesh, Odisha and Jharkhand. The company is looking at more than 1 million tonne capacity for aluminium in the next few years from 513,100 tonnes now, while its copper capacity, with only one plant, remains at 500,000 tonnes.
The company perhaps realized this anomaly as it announced in August that it is re-evaluating its investment strategy with respect to the proposed Aditya Refinery in Odisha and the Jharkhand aluminium project, citing delays in getting regulatory approvals and the uncertain economic environment.
The company has several bauxite mines for aluminium, but none for copper.
While most metal prices globally have been subdued due to sluggish economic growth in developed markets and fear of a slowdown in China, prices of aluminium on the London Mercantile Exchange (LME) have fallen more steeply than prices of copper. Over a one-year period, LME aluminium has fallen nearly 14%, while copper has fallen 7%. Over the past 6 months too, aluminium prices have fallen by a steeper 6% compared to a 1% price fall in copper.
A metal and mining analyst said. In aluminium, the globe is oversupplied mainly as China is producing more which has dampened prices, the analysts added.
“In 2010-11 we all spoke about aluminium as the metal that would do well and at that time Hindalco had capacity constraints,” said Alok Agarwal, head of research, institutional equity, at Networth Stock Broking Ltd. “Now with the economic slowdown and the changes that have come with it, all of the aluminium production is not being absorbed.”
Yet, Hindalco is choosing to push aluminium sales, despite the lower realizations.
In the December quarter results, net sales of copper stood at Rs.4,817 crore, up 3.35% from the same period a year ago while aluminium net sales were at Rs.2,471 crore, up 12% on year.
Analysts said Hindalco’s strategy may now be to consolidate, including partly reducing its exposure to the aluminium segment, but it may not take away the fact that it needs copper mines to secure its raw material supply.
“We think management’s strategy to put Aditya refinery and Jharkhand smelter on hold—is a right step given concerns on coal security,” said the analyst, referring to Hindalco’s announcement to hold the Jharkhand project last year.
