BackNalco plans `5,000 crore alumina refinery to revive earnings
The planned expansion is the second in three years to benefit from higher margins offered by alumina
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Mumbai: National Aluminium Co. (Nalco), India’s biggest state-owned producer, may invest ₹ 5,000 crore ($811 million) to boost its alumina refining capacity and revive earnings that are forecast to slide to a three-year low.
“The company will enhance its annual ability to process alumina by 43% to 3.3 million tonnes over the next two years, and will export any surplus," chairman Ansuman Das said in an interview. The planned expansion is the second in three years to benefit from higher margins offered by alumina, a white powder derived from the ore bauxite, as prices of the end product aluminum slump.
“We’ll take a decision to set up a new alumina line by December," Das said. Lower metal prices have made selling alumina more lucrative.
Nalco has shuttered one-third of its 460,000 tonnes smelter because of a coal shortage and lower aluminum prices, causing earnings to decline in five of the last six years. Profit margin from alumina sales was 45% in the year ended 31 March, while the lightweight metal used to make beverage cans and aircraft parts fetched no more than 6%.
The metal fell 7% on the London Metal Exchange since 1 April, making large smelting capacities across the globe unprofitable.
Gujarat venture
“Nalco is also seeking to form a venture with Gujarat Mineral Development Corp. to set up another 1 million tonne refinery in the western state," Das said. “The company will hold a 51% stake, while Gujarat Mineral has evinced interest for 26%," he said.
Nalco’s profit is set to drop 8% in the year ending 31 March, according to the median of 17 analyst estimates compiled by Bloomberg. Net income fell 30% to ₹ 590 crore last fiscal year. Net income in the quarter ended June 30 declined 28% to ₹ 160 crore.
Shares of the company based in Bhubaneswar in Odisha have slipped 32% this year to ₹ 33.45 in Mumbai, compared with a 2.5% gain in the benchmark S&P BSE Sensex index of Indian stocks.
“Alumina production may rise 17% to more than 2.1 million tonnes this fiscal year, while metal output may slide as much as 24% from last year’s 403,384 tonnes," Das said.
Indonesia curbs
Nalco will benefit should Indonesia, one of the world’s largest producers of bauxite that exported 66% of its output this year, curb overseas sales of the ore. The southeast Asian nation’s move to block outbound shipments of unprocessed ore in 2014 may raise prices of alumina and costs for global aluminum producers, Bloomberg Industries analysts Kenneth Hoffman and Andrew Cosgrove said in a report on 2 October.
“Nalco decided to scrap plans for a $4 billion project to build a 500,000 tonne aluminum smelter, power plant and coal mine in Indonesia," Das said, without giving details. The venture with the Indonesian government, which was announced in June 2008, got delayed after the company failed to secure a supply accord with MEC Coal Pte for the project in Kalimantan province.
“The company expects aluminum premiums to fall starting next fiscal year if the London Metal Exchange’s proposed rule changes take effect starting 1 April, increasing supplies in the spot market," Das said. “Premiums are paid by the buyers on top of the exchange’s prices for immediate delivery."
Global glut
“About 66% of aluminum producers would be losing money because of declining premiums should the LME approve rules to cut waiting times at its warehouses," JPMorgan Chase and Co. said in a report e-mailed on 30 August. “About 60% of the industry is losing money even with higher premiums," according to that report.
“While the outlook on prices is uncertain, I believe current levels are the bottom," Das said. “There is a surplus in the global market, which is weighing on prices."
“Aluminum stockpiles total about 14 million tonnes, including 5.36 million tonnes in warehouses monitored by the LME," according to Edinburgh-based researcher Wood Mackenzie Ltd. “As much as 80% of the inventory is tied up in financing transactions, and unavailable to consumers," Societe Generale SA estimates.
“Global aluminum costs were inflated by $3 billion in the past year through unfair rules that allow Goldman Sachs Group Inc., JPMorgan and other warehouse owners to slow deliveries," Tim Weiner, a global risk manager at Chicago-based MillerCoors LLC., said in a written testimony before his appearance 23 July at a US Senate subcommittee hearing in Washington.
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