As Indian GDP Drops, NALCO Forges On, Betting On Aluminum Demand

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Indians may not be great consumers of aluminum, but sector analysts and the industry expects all this to change in the long term.

The per capita consumption of this metal in India is about 1 kilogram (2.2 pounds), as compared to about 10 kilograms (22 pounds) in China and 30 kilograms (66 pounds) in Europe. However, consumption is bound to grow from this low point, especially when demand from the power sector goes up.

India’s aluminum players like Hindalco, India’s second-largest producer, and the government-run National Aluminum Company Ltd. (NALCO), compared to their competitors elsewhere, hold a distinct advantage because of the benefits derived from their backward integration.

What also helps is the fact that India has the fifth-largest bauxite reserves in the world, with deposits of approximately 3 billion tons. Indian producers also benefit from their proximity to bauxite mines, captive power plants and comparatively cheap labor.

Sensing the slow but perceptible shift in the market mood and the positive long-term outlook, NALCO has some bullish plans lined up for the mid term. One is the setup of two aluminum smelters in India and abroad. Incidentally, NALCO is on the Indian government’s ‘navratna’ list (nine gems), which is a list of Public Sector Units (PSUs) doing extremely good business despite being state-owned. Its aggressive growth plans, though, will need some cash infusion.

Last week, the Indian government’s Press Information Bureau had issued a press note on behalf of the Minister of Mines Dinsha J. Patel, explaining NALCO’s expansion plans, which include:

• Alumina refineries in the state of Andhra Pradesh and the western state of Gujarat

• An aluminum smelter and power plant at Sundargarh in the state of Odisha

• Alumina refinery and wind power plant in Andhra Pradesh

In a recent interview with Moneycontrol.com, B.L. Bagra, NALCO’s CMD and finance director, also touched upon this PSU’s growth plans. In the same interview, he had expressed some concern over the dropping prices of aluminum on the London Metal Exchange (LME) recently, as well as the increase in the prices of raw materials necessary in the production of aluminum.

LME prices had recently dropped below the psychological barrier of $2,000 per ton. Bagra had said LME prices, going southwards, had caused some concern at NALCO. But, he said, these losses were being overcome partially by the premiums on the company’s export tenders, which he said, had over the last two months increased almost by 100 percent. NALCO’s tenders serve as a global price benchmark.

Continued in Part Two.

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