Indian primary aluminium makers ramping up their downstream operations to pare debts

<p>Global aluminium industry has been undergoing a paradigm shift over the last ten years. From primary metal production, the focus has shifted to downstream manufacturing. In India too, the change has happened, though at a bit slower pace. All major primary aluminium producers including National Aluminium Company (Nalco), Aditya Birla Group owned Hindalco have been extruding aluminium products in small volumes, but the first big change took place when Hindalco stepped beyond the geographical borders and bagged leading manufacturer of rolled aluminium products and the world&rsquo;s largest recycler of aluminium Novelis in a $6 billion all-cash deal in 2007. <br /><br />Since then, all primary manufacturers have stepped up their activities in their downstream aluminium divisions. Two factors have worked in tandem to expedite this change- one, &lsquo;push&rsquo; factor &ndash; the swelling debts on the companies, and two, &lsquo;pull&rsquo; factor &ndash; the estimated increase in <a href="http://www.alcircle.com/primary_aluminium/newscircle/general/detail/25969/indias-annual-aluminium-consumption-grows-20-year-over" target="_blank">aluminium consumption in India</a> by 2020. <br /><br />High volatility in LME aluminium prices have nibbled into the earnings of the top producers like Hindalco and Vedanta. The debt portfolio of the companies together has swelled to reach over INR1.4 lakh crore (US$24 billion approximately). Aggravating their plight, cheap aluminium imports have flooded the market in India. In the face of these challenges, both the companies have dived deep into their cost structures to find out ways to pare down the mounting debts. While doing so, they have reached a point where value-addition seems to be the last and only resort. <br /><br /><img style="display: block; margin-left: auto; margin-right: auto;" src="http://www.alcircle.com/uploads/images/India%20aluminium.jpg" alt="News" width="480" height="420" /><br /><br />Value addition in aluminium business makes sense because it does not require huge capital investment. Plus, the procedure and end products are well buffered from the vagaries of metal prices. So, Hindalco has taken the route to increasing its proven downstream capacities to trim a consolidated debt of INR67517 crore (about US$11 billion). <br /><br />Novelis refinanced INR16,753 crore of debt in a phased manner in August and September this year, helping Hindalco Industries to save INR362 crore in interest every year. The rolled aluminium products maker is now planning to sell its alumina refinery and bauxite mines in Brazil in order to lower its massive consolidated debt.<br /><br />{googleAdsense}<br /><br />Vedanta too is focusing on its downstream aluminium operations. It has ramped up its upstream business with minimal incremental Capex. Till the end of June this year the conglomerate has managed to cut its debt of over IN77,000 crore (US$13 billion approximately) by $700 million. Market watchers believe the group&rsquo;s recent merger with Cairn India will bring in cash flow that will enable it to trim debt, thanks to Cairn&rsquo;s cash rich balance sheet. <br /><br />Vedanta through process innovation is also designing new <a href="http://www.alcircle.com/downstream_products/newscircle/general/detail/26141/hzl-to-launch-specialized-zinc-aluminium-alloy-at-the-international-galvanising-conference-2016" target="_blank">advanced zinc-aluminium alloys</a> to leverage on the opportunities present in India&rsquo;s untapped automobile engineering market. <br /><br />India&rsquo;s Navaratna PSU National Aluminium Company (Nalco) is also under pressure from the ministry that has been insisting on further value addition by the country&rsquo;s prime aluminium producers.&nbsp; Nalco has been exporting around one million tonnes of surplus alumina every year. Now, it needs to realign its downstream portfolio and remodel its cost structure, which it is already doing. <br /><br />By increasing downstream manufacturing the companies will not only be in a position to cut down their debts but also feed the domestic market where the consumption is set to reach 5.3 metric tonnes by 2020-21 rising from the present volume of 3.3 million tonnes in 2015-16.</p>