In spite of India’s coal supply crisis easing up a bit, the country’s aluminum sector has pressed the panic button. The industry has alleged that low coal stocks threaten supply of the metal.
The Aluminium Association of India (AAI) voiced this concern in a representation to the Indian Ministry of Coal last week. The AAI has demanded immediate resumption of railway rakes to transport the much-needed power source, coal, from the mines to the aluminum plants. The sector has only about 4 days of coal stocks. The industry typical has 15 days of supply.
Energy costs big chunk of overall aluminum price
In fact, the Association has also requested the Government of India (GoI) do away with the “coal cess” (tax) it imposed some years ago to overcome the crisis. Coal contributes about 40% of the production cost of aluminum.
Power costs, as well as an increase in logistics costs, has exacerbated aluminum supply. While in other aluminum producing nations, the respective governments have supported the domestic aluminum industry through subsidies and lower taxes. Not so in India.
India top aluminum producer globally
After China, India ranks as one of the top aluminum producers, with per year production levels hovering around four million metric tons. In fact, Fitch Solutions had predicted India’s consumption of aluminum to more than triple to 9.5 mt by 2030. This would make India a “stand-out growth market” for aluminum consumption as the country pursues construction projects to resolve an infrastructure deficit.
With players like Vedanta increasing production targets, the frequent bouts of coal shortages may derail the plan, say some analysts.
The Indian coal crisis
India has battled a coal shortage crisis for years. The situation became worse in October 2021, causing anxiety among different stakeholders such as governments, thermal power plants, industries, and investors. The shortage came from a mix of global and domestic factors and most recently, supply chain disruptions due to the COVID-19 pandemic.
Global coal prices have increased about 40%. Many port-based power plants in India rely primarily on imports. Indian power plants now almost exclusively rely on Indian coal due to the global economic conditions and the sharp rise in coal prices internationally.
Coal India Limited supplies 80% of India’s coal needs. India has demand for coal of nearly a billion tons a year, but supply is below 800 mt. The temporary ban on coal exports (for Jan 2022) by Indonesia, has added to the woes of Indian aluminum and other metals producers.
With such a gap between demand and supply of coal, experts say the private sector serves as the only viable option for India to come out of this crisis. While the GoI contemplates such a move, it may take years before private players get into the act at the ground level. To restore coal supply to critical sectors in the short-term, some sort of quick resolution is required.