Indian aluminium firms enjoy certain advantages in bauxite sourcing, transfer

By Kunal Bose

Unlike aluminium smelters in West Asia benefiting from use of cost effective natural gas and the ones in Europe and Canada from hydro power, production of the white metal in India is based entirely on relatively more expensive coal-fired electricity. But in terms of availability of bauxite resources with high alumina content, this country enjoys a unique advantage over most other production centres. Take China, the world’s largest producer of aluminium with a share of 56.67% of the global output of 64.76 million tonnes (mt) in 2020 when its consumption of 37.77 mt was 60.14% of the world total of 62.80 mt. To sustain the mammoth aluminium industry, China is required to import huge quantities of bauxite and also smelter feedstock alumina.

Even while China mined about 70 mt of bauxite last year, it was required to import 112 mt of the mineral to be able to make 73 mt of alumina. This, however, was not enough to meet smelters’ full requirements of the intermediate chemical alumina leading the country to import 3.84 mt. Clampdown on illegal mining, deteriorating quality of local ore and compulsion to restrict mining related pollution will perennially leave China as a very big importer of bauxite. This is the reason why China is investing heavily in mines and infrastructure development in Guinea, which owns in excess of a quarter of global bauxite reserves and most of that is highly alumina rich.

As against what obtains in China, India bauxite ore though not in the same class as Guinean ore has not stopped Hindalco subsidiary Utkal Alumina International (UAI) and the government owned National Aluminium Company (NALCO) from finding places among the world’s lowest cost producers of alumina. Their ownership of bauxite deposits in the hills of Baphlimali and Panchpatmali, respectively that are to last over 25 years, the cost effective and environment friendly system to transfer ore from mines to refineries through single flight multi-curve conveyors and periodic technological interventions to improve Bayer’s process technology in use in refineries are the reasons for very low alumina production cost.

However, though Vedanta will match its two Indian peers in terms of refinery operational efficiency it loses out on overall refining cost for its very high level of dependence on external sources for alumina. Against UAI and NALCO securing all the bauxite from its own mines, captive ore supply in the case of Vedanta is less than 10%. The difference in Vedanta’s 2020 alumina production cost of $235 a tonne and NALCO’s $178 a tonne will be bridgeable only when the former starts drawing 100% bauxite ore from captive mines.

Vedanta Aluminium CEO Rahul Sharma regrets that in spite of reforms brought in through the 2015 Mines and Minerals (Development and Regulation) Amendment Act, not a single bauxite deposit has come under the hammer in last six years. During this period, the country, according to Sharma, spent Rs 5,300 crore ($765 million) for bauxite imports.

At the same time, Sharma is hopeful that “based on the progress of exploration, the government will be in a position to auction seven to ten mines, each containing deposits between 100 mt and 150 mt, in the New Year. We have recently announced our mega alumina refinery capacity expansion programme and, therefore, Vedanta’s hunger for bauxite is so much more heightened. Against this background, expect us to place strong bids at all auctions.”

As it would happen, the one recently completed expansion by way of UAI adding 500,000 tonnes to become a 2 mt refinery and alumina capacity growth proposed by Vedanta and NALCO at their present sites are all in Odisha. This is as it should be. The eastern coastal state alone holds 51% of the country’s bauxite resources of 3,897 mt. Moreover, Odisha is holding the second largest coal resources among the states next only to Jharkhand.

NALCO, according to chairman Sridhar Patra, has in the post-second Covid wave has given an extra push to ensure that the long talked about 1 mt fifth stream becomes part of the 2.275 mt operating alumina refinery at Damanjodi by the second quarter of 2023-24. The challenge for the company is to make up for the time lost since March 2020 following the outbreak of Covid-19. In the meantime, Vedanta is to expand its Lanjigarh refinery by 3 mt to 5 mt to make it one of the world’s largest single location alumina complexes.

Being a PSU, NALCO enjoys government largesse by way of allotment of bauxite and coal deposits from time to time. Like New Delhi allotted a 110 mt superior quality bauxite deposit at Pottangi to the company to run the fifth stream of Damonjodi refinery. The plan is to synchronise the commissioning of the fifth refinery stream and ore extraction from Pottangi. Aware that mine openings are a time-consuming proposition involving hosts of regulatory clearances and work slippages, Patra has a contingency plan in place readying a mine in the south block of Panchpatmali to take care of ore requirements of refinery expansion in the pipeline till the mineral starts coming out of Pottangi. Not only are NALCO and Vedanta to build new alumina refining capacity, they are also to expand smelters in downstream.

Sharma says Vedanta will make Jharsuguda a 2 mt smelter from its present capacity of 1.6 mt through brownfield expansion. A lot more ambitious is to further raise BALCO capacity to 1 mt from 570,000 tonnes in the next 24 months. Unlike some of his predecessors, Patra doesn’t believe in going to town to announce any expansion before government and board clearances. What, however, can be said is that NALCO is actively considering creation of brownfield smelting capacity of 500,000 at Angul where it runs a 460,000 tonne plant.

(A former FT correspondent, the author is now India correspondent for Euro Money publication Metal Market Magazine)