Vedanta to start gradual closure of Lanjigarh refinery due to cost pressures

Mumbai: Mining and oil and gas company Vedanta Ltd will start a gradual closure of its 1 million tonne per annum (mtpa) Lanjigarh refinery in Odisha as low aluminium prices and scarce bauxite make the plant unviable.

“The aluminium prices the world over have collapsed in the past few months and current indications are that this trend will continue. Our Lanjigarh operations have additionally been affected by the non-availability of bauxite from within the state of Odisha... we are severely constrained by this excessive cost burden on our Lanjigarh operations but seem to be left with no choice to implement a gradual closure,” said the company in a notice to the stock exchanges on Thursday.

Bloomberg had reported on Wednesday that the company might shut operations at its refinery due to low aluminium cost.

The Lanjigarh refinery produces alumina from bauxite, which is then fed to its two aluminium smelters at Jharsuguda in Odisha. Besides, the company has two more aluminium smelting (producing) units at Korba in Chhattisgarh which source alumina from the open domestic market and imports.

For a profitable aluminium-producing business, a company needs to have a secure and cost-effective supply of bauxite, alumina and coal. For producing 1 tonne of aluminium, 2 tonnes of alumina is required and to produce every tonne of alumina, 3-3.5 tonnes of bauxite is needed. Therefore, Vedanta requires 3.5 million tonnes of bauxite, out of which its current secured availability from domestic sources is a little over 1.5 million tonnes.

On 21 August, during an interview with Mint, Abhijit Pati, chief executive officer of the company’s aluminium business, had said that all its four aluminium units have slipped into losses due to an over 18% fall in aluminium prices.

Together, these units are currently producing 1 million tonnes of aluminium.

He had said that currently the company has not taken any decision to cut production of its aluminium operations, but might have to do so if the LME aluminium prices fall below the $1,400-per-tonne mark. Currently, LME aluminium price is above $1,550 per tonne.

At 12 noon, Vedanta shares were trading at ₹ 90.35, up 5.61% on the BSE, while the benchmark Sensex was up 1.25% at 26,036.57 points.