Aluminium per capita consumption in India will double by 2030, the industry is getting ready with strong investments in the upstream segments and new initiatives to accelerate the development of the downstream sector currently undersized with respect to the potential of the domestic market
by Alberto Cavicchiolo
Dr Tapan Kumar Chand, Chairman of the National Aluminium Company Limited and President of the Aluminium Association of India speaks about NALCO, India, the Indian aluminium industry and the upcoming International Conference on Aluminium (INCAL-2019) in Bhubaneswar, Odisha.
First of all, many congratulations to you, under your leadership NALCO is emerging as a global player and could beat market estimates to post record profits in 2017-18, as well as in the first and second quarters of 2018-19 consecutively. What are the main factors influencing such a surge in profits?
We have introduced a new business model focused on improving operational efficiency, augmenting production, cost reduction, improving market realization through innovative market strategy, and strong team working. All these factors have played a key role in achieving the record profit. The Company has doubled its net profit (PAT) in 2017-18 by posting INR13.42 billion ($189.39 million). It has repeated its performance in Q1 & Q2 of 2018-19 by notching up a turnover of INR 59.52 billion in the first half of FY 2018-19, i.e. 42% growth over H1 of FY 2017-18. The Company registered one of its strongest performances, posting a Net Profit of INR 11.97 billion ($168.92 Million) in the 1st half of 2018-19 compared to INR 3.64 billion ($51.37 Million) in the corresponding period previous fiscal (2017-18), registering a whopping growth of 229 %.
How did you manage to reduce costs?
We have completely revised our position relative to the purchasing of essential raw materials, especially of alumina, we have switched over from a long-term contract to spot contract. That has made us close to the rising market conditions and consequent advantages accrued from it. In addition, we settled a water charges dispute with the state government and there was some writing back as exceptional items, which helped the company to boost profits in 2017-18.
Since taking over the mantle of the Navratna Company in July 2015, what are the highlights in this stint that ,has made NALCO a force to be reckoned with with in the Mines and Metals Sector?
In July 2015 the aluminium market hit rock bottom with LME continuously sliding down, touching $1424/MT on 23rd November, 2015. Smelters in many countries were regulating production. As a strategy, we decided to swim against the current by reversing what was previously production regulation to production optimization in Mines and Refinery, because the alumina segment is the milk cow. In the aluminium segment, which is susceptible to downturn in the market, our strategy was augmenting production to the level up to which we made a positive contribution. Besides this, we tried to obtain profit from our green energy segment. Cost reduction became the main focus during the downturn and accordingly specific consumption of energy and critical raw materials were contained. All this strengthened NALCO’s profitability and built up the confidence to go for expansion of the refinery, smelter, power plant and value added sectors.
Next, raw material security was one of our top priorities to keep the company going & expanding. Securing Bridge Link coal was an immediate relief in cost side and allocation Pottangi Bauxite Mines & Utkal D & E Coal Mines were momentous steps in this direction.
With sustained efforts we have become the lowest cost producer of alumina in the world and are experimenting with a new technology i.e. AP2XN to reduce the DC energy consumption up to 5% in aluminium smelting, thus aiming for a significant cost reduction as power constitutes about 30% of the smelting costs. Besides, we have started implementing brownfield expansion to increase volume and decrease per-unit cost of production. We hope, there will be a cost reduction of 5% to 7% per tonne of aluminium.
As such we have started replacing the ageing equipment of all our plants and machinery with the state-of-the-art ones and thus the CAPEX utilization is steadily increasing over last 3 years from INR 4.52 billion ($63.79 million) 2015-16 to INR 8.76 billion ($123.62 million) in 2016-17 and INR 10.80 billion ($152.41 million) in FY 2017-18.
R & D has been one of our key thrust areas. We successfully developed a new indigenous nano-based EMRION technology, first of its kind in the world, and thus could recover more than 95% of the water without any wastage and eliminating the use of any chemicals. To date the company has filed 35 patents out of which 17 have been granted and 5 commercialized.
Since NALCO is a listed company, we went for buyback of shares; that in association with improved performance and raw material security helped in making the share price more than double and market capitalization also doubled during the period 2015-2018. We have increased the dividend to shareholders from 40% to 56% in FY 2016-17 and 114% in FY 2017-18.
What about future expansion plans in the upstream? What are the key challenges facing the mines sector and how is NALCO gearing up to face these hurdles?
We have already started the work of expansion for 1 million tpa alumina refinery at Damanjodi and are going ahead with brownfield expansion of the smelter to achieve a capacity of 1 million tpa with a captive power plant of 1320 MW: land acquisition, along with forest and environmental clearance, are the main challenges in the mining sector. Since mineral-rich areas are traditionally inhabited by locals & tribal peoples—whose displacement on account of mining brings in emotional outbursts due to attachment to the place and apprehension about continuing livelihood support for the future— rehabilitation and resettlement become issues that need to be redressed. With the new MMDR Act 2015, and the development of the District Mineral Fund, a structured and assured beneficiary program has been created by statute motivating people to consider reintegration. As such NALCO’s proven track record of attractive reintegration and resettlement programme and community engagement are helping us to move in the right direction.
Getting forest clearance and environmental clearance for the mines are other major challenges, which have to be negotiated with a lot of sagacity, planning, co-ordination & implementation. We have a dedicated group of professionals to steer the company in this direction. Moreover, we are also sourcing professional expertise as and when required. In respect of our new refinery, we have already obtained all statutory clearances and are set to break the ground. Similarly, we have been able to open a new bauxite mine in South Block Panchatmalli in Damanjodi.
What are your key projects in alumina and primary metal production?
The company is moving ahead to strengthen its core business portfolio by expanding its capacities in alumina refining and aluminium smelting. The work for 1MTPA alumina refinery expansion ($791 million) has already started. The new refinery plant will be fed by a new south block bauxite mine of Panchpatmalli and subsequently through the Pottangi bauxite mine, which will be operational in the next 4 years. Pre-project activities for brownfield expansion of a 0.5 million tonne per year smelter at Angul ($1.43 billion) has also started with a vision to take Nalco 1 MTPA club. We are also looking for 660 MW X 2 Captive Power Plant ($ 1.14 billion) in our existing location.
We have plans for setting up a 1.4 million ton refinery in Andhra Pradesh for which we have requested the Government of Andhra Pradesh to reserve the bauxite mine in our favour.
To meet the huge energy requirements for the expansion of the smelter we have already secured Utkal D & E Coal mines. We are working to operate the Utkal D mine this year or early next year and subsequently both the mines will be operational. Further as a part of strategic backward integration we formed a JV with Gujarat Alkalies and Chemicals Limited (GACL) for producing caustic soda, a key input for alumina making, and are setting up a 2.7 LTPA plant at Dahej. Similarly for value addition as well as giving boost to ancillary & downstream industries in the state, we have partnered with IDCO to develop a world-class aluminium park at Angul. We have already committed 50,000MT/year of hot metal to this park.
NALCO, Hindustan Copper Limited (HCL) and Mineral Exploration Corporation Limited (MECL), the three CPSEs under the Ministry of Mines, Government of India, signed a MoU to set up a JV Company named Khanij Bidesh India Limited (KABIL) to identify, acquire, develop, process and make commercial use of strategic minerals in overseas locations for supply in India and boost the “Make in India” initiative of Government of India.
The Company signed a MOU with Mishra Dhatu Nigam Limited (MIDHANI) for the establishment of an aluminium alloy manufacturing plant in JV mode for meeting the needs of the Defence, Aerospace, Automobile and Transport sectors and signed a MoU with Neelachal Ispat Nigam Ltd (NINL) for setting up a coal tar distillation plant in JV mode for production of coal tar pitch.
As a responsible corporate entity, the Company has given thrust to the renewable energy sector by commissioning 198 MW wind power plants and is in process of setting up 50 MW wind power projects in Tamil Nadu.
How do you estimate the growth of the Indian aluminium industry in the near future and which sectors would you identify as major users of aluminium in India?
India is the bright spot in Asia and is the fastest growing large economy in the world clocking a yearly growth rate of 7-7.5%. One per cent growth in GDP corresponds to 0.95% growth of aluminium consumption in India. The country is likely to reach a consumption of 10 million tonnes/year by 2030, currently it is about 3.4 million tonnes, there are enormous possibilities for market development, the first step is to double the per capita aluminium consumption from 2.5 to 5 kg. While the production growth will take place due to availability of good quality bauxite, to the tune of 3.9 million tonnes coupled with proximate coal deposit, consumption is strongly picking up due to massive developments and emergence of India as a sub-continental size economy. All these will trigger the aluminium market to zoom in the near future. As major sectors responsible for aluminium consumption we can see the sectors of the electrical transmission, the infrastructure, the building and construction, the packaging, the transportation. With the thrust given on electric vehicle and aluminium wagons, the transport sector is likely to witness a quantum leap in aluminium consumption. Similarly, smart cities will be highly dependent on aluminium materials. In addition, the plans for rural electrification and the rise of the middle class will stimulate the packaging industry.
In conclusion, what are the main efforts being made by the Indian aluminium producers to stimulate an increase in aluminium usage in India?
Primary producers like Hindalco, Vedanta, and NALCO along with secondary producers and transformers, under the umbrella of Aluminium Association of India (AAI) have been organizing seminars, road shows, and conferences in various parts of the country to propagate the use of aluminium and get informed about the latest technological developments in this sector. The International Conference and Exhibition INCAL 2019, between 31st January and 3rd February 2019, will be an excellent platform for Indian as well as overseas companies to meet and interact with potential users and customers and to build long-term business opportunities. The Conference besides focusing on the theme ‘Making Aluminium… Driving Growth And Development’, will also deliberate on several key topics and issues that are important for the Aluminium industry with a special session on Downstream Prospects and Emerging Applications of Aluminium. We are going to have participation from over 25 countries including some leading companies from Europe in this event, it will bring together the industry captains from around the globe including producers, manufacturers, processors and suppliers, end-consumers along the whole supply chain. We are sure the delegates and participants will secure deeper insights and breakthroughs emerging through valuable interactions.