Vedanta bets on captive bauxite as OMCL pricing dispute threatens cost advantage

Vedanta Aluminium Metal Ltd is turning to captive bauxite supplies to manage rising raw material costs as a pricing dispute with its long-term supplier, Odisha Mining Corporation Ltd (OMCL), puts pressure on its procurement expenses. The company plans to begin production at its Sijimali bauxite mine in Odisha during the current financial year, targeting an initial output of 1 million tonnes.

Vedanta received long-pending consent to operate the mine in September. Production is expected to increase to 5–6 million tonnes in FY28, with the captive resource anticipated to replace imported bauxite and reduce the company's dependence on external suppliers.

The mine is expected to generate savings of approximately USD 25 per tonne, according to chief financial officer Anup Agarwal, who discussed the project during the company's September-quarter earnings call. He said the expected savings would exceed the additional USD 8-10 per tonne in costs that Vedanta would face because of higher prices from OMCL.

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Sijimali mine to strengthen captive bauxite supply

Vedanta requires approximately 12 million tonnes of bauxite annually to support its aluminium production capacity of 3 million tonnes. Despite its scale of operations, the company has relied entirely on supplies from OMCL and imported bauxite to meet its raw material requirements.

Imported bauxite has been more expensive than the material sourced by some of Vedanta's industry peers. Meanwhile, relatively low-priced supplies from OMCL had helped the company maintain a competitive blended cost for its raw material procurement.

However, the pricing dispute with OMCL has raised the prospect of higher procurement expenses. Against this backdrop, developing the Sijimali mine offers Vedanta an opportunity to secure a greater share of its bauxite requirements through captive production.

With an initial production target of 1 million tonnes and an expected increase to 5–6 million tonnes by FY28, the mine is set to become an important part of the company's raw material sourcing strategy.

The expected USD 25 per tonne saving from captive bauxite production could help offset the additional costs associated with higher OMCL prices, while reducing Vedanta's reliance on imported supplies.

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