Indian aluminium makers need to be cost competitive, say analysts

Hurt by spate of cheaper imports and plummeting LME (London Metal Exchange) prices, Indian aluminium makers need to focus on cost competitiveness in the long run to compete against their global counterparts, observe analysts.

Aluminium producers like National Aluminium Company (Nalco), Hindalco Industries and Vedanta have been pressing for hike in import duty to 10 per cent (from five per cent now) to counter the threat from rising imports from China and West Asia. Also, falling metal prices have eroded their competitive edge, forcing them to keep half of their capacities idle.

"Increase in import duty can provide an immediate relief to Indian aluminium producers but in the longer run, cost competitiveness is important. Two key input costs are energy cost and bauxite cost. With all key minerals going to auction route, costs are expected to increase combined with the new levy in the form of DMF (District Mineral Foundation) . Thus, it is important to find ways to reduce costs to make Indian players competitive", said Pukhraj Sethiya, associate director, energy (coal & mining), PricewaterhouseCoopers (PwC). He, however, ruled out the risk of aluminium investments turning into NPAs (non-performing assets).

The domestic aluminium manufacturers have invested around INR 1.2 lakh crore and as per the estimates of the Aluminium Association of India (AAI), these investments run the risk of turning into NPAs if the prevailing imports continue unabated. AAI met Union finance minister Arun Jaitley on September 13 to apprise him on the crisis faced by the domestic manufacturers due to rising imports.

"In the April-August period of this fiscal, imports are more or less at the same level compared to the same period of last fiscal though we feel that imports may be somewhat higher by the end of this fiscal. Spot prices of alumina have touched $270 a tonne in the global market. We are currently importing nearly one million tonne of alumina per annum but are trying to cut imports by firming up deals with domestic suppliers", said a senor executive at Vedanta.

Aluminium imports rose from 0.88 million tonne (mt) in 2010-11 to 1.56 mt in 2014-15, registering a CAGR (compounded annual growth rate) of 15 per cent. In the same period, the share of domestic producers fell from 60 per cent to 44 per cent.

Together, Bharat Aluminium Company (Balco), Nalco, Vedanta and Hindalco have an installed capacity of 4.21 mt. But actual production in last fiscal was 2.26 mt, meaning a capacity utilisation of only 49 per cent.

Globally, cost of aluminium production was on the decline on the back of weaker local currencies, lower coal prices and electricity tariff in China and cheaper gas based power generation in West Asia. In contrast, the domestic aluminium makers were in the soup as higher coal and logistics cost were eroding their operational viability.