New Delhi/Mumbai: State-run National Aluminium Co. should focus on building more smelters in India to benefit from cheap and abundant electricity supplies rather than pursue overseas expansion, according to federal mines secretary Balvinder Kumar.

“We have asked Nalco to concentrate on making aluminum domestically, rather than exporting alumina," Kumar said in an interview in New Delhi. “We want to reduce our dependence on imports." National Aluminium, or Nalco’s, chairman Tapan Kumar Chand didn’t answer calls to his mobile phone seeking comment.

The shift in strategy reflects the government’s plan to promote domestic manufacturing, encourage exports of value-added products and curb shipments of minerals. Drawn by the availability of cheap power, Nalco in May signed an initial agreement to explore setting up a smelter in Iran, which would be fed with the raw material alumina from the company’s refinery in India.

“We have a surplus power generation capacity and prices have come down," Kumar said. “There is enough demand in the country. Nalco can set up a 2 million ton-a-year smelter in India. Then they don’t need to sell alumina to anyone."

Nalco scouting

Nalco zeroed in on Iran after scouting for opportunities across energy-rich nations in the Middle East and Southeast Asia. The company had battled high energy costs, having to import expensive coal to produce electricity from its captive power plants. The situation has reversed since then, after India’s generation capacity and coal output raced past demand, driving down electricity prices.

“From the government’s perspective, they are correct. It’s better to process raw materials within the country," said Goutam Chakraborty, a Mumbai-based analyst at Emkay Global Financial Services Ltd. “But for Nalco, margins are better for alumina, not aluminum."

India consumes about 2 million metric tons of aluminum annually, about a fifth of which is imported, Kumar said. Nalco runs a 460,000-ton a year smelter and a 2.2 million-ton a year alumina refinery in the eastern state of Odisha, according to its website. Vedanta Ltd. and Hindalco Industries Ltd. are the other major aluminum producers in the country.

India’s daily average spot electricity price was Rs2.7 a kilowatt hour on 20 September, declining from an average Rs7.31 in the year ended 31 March 2009, according to the Indian Energy Exchange, the country’s biggest electricity exchange. Bloomberg