India: Ministry of Mines proposes to lower bauxite benchmark price, benefitting aluminium makers and consumers

Ministry of Mines, Government of India, has reportedly proposed to lower the benchmark price of bauxite used to calculate the estimated value of resources and premium payable in auctions. The Ministry has put forward this proposal after getting multiple complaints from mining companies that claim the formula used for calculating the average sale price (ASP) of bauxite based on aluminium price on the London Metal Exchange (LME) provides a very high conversion rate. Currently, the formula outlined in the Mineral Concession Rules of 2016 has a conversion rate of 6.4 per cent.

Image Source: NALCO

Ministry of Mines has proposed to lower the conversion rate for metallurgical grade bauxite to 4.9 per cent from the existing 6.4 per cent after a committee constituted for ASP submitted its report.

According to the proposal, the revised conversion factor will be applicable to those metallurgical-grade bauxite miners who will be getting mining leases after the official implementation of the new metric. For all other mining companies, the conversion rate would remain at 6.4 per cent.

Lower benchmark prices of bauxite will benefit both aluminium makers and consumers, as this will reduce raw material costs of aluminium production and decrease the selling prices of end-user products. From aerospace and automobiles to electrical power transmission and building construction, aluminium is an essential product used in varied end-user sectors.

Moreover, the reduced prices of aluminium may boost the per capita consumption of the metal in India, which is among the lowest in the world, with only 2.5 kg, compared to the world average of 8 to 22-25 kg.