Coal shortage, scrap imports worsen price fall pain for aluminium industry

07/12/2018

Mumbai: A shortage of coal, coupled with a shortfall in rail rakes, is significantly pushing up production costs for domestic primary aluminium manufacturers. The cost of power accounts for 45 per cent of the total cost for the industry.
Amid falling prices of aluminium and pressure to keep costs low, cheap scrap import has been breaking the industry's backbone, according to a leading aluminium company official.
The official of a large aluminium producing company said that they had seen price levels of $1,900 per tonne for aluminium earlier, too. However, he added, raw material supply and logistical issues were never a problem and these issues were making the fall in price look more painful.
"We have large power plants that are lying idle due to raw material supply and logistics issues. Due to this, our costs have gone up by more than 20 per cent, making operations difficult for us," a senior official with one of the primary aluminium producers told
Aditya Birla Group's Hindalco Industries, Anil Agarwal-led Vedanta Ltd and state-owned National Aluminium Company Ltd are the three major primary aluminium producers in the country.
Their combined annual output is four million tonnes and can cater to the entire domestic market, where consumption is usually 3.1-3.6 million tonnes. Excess production is exported by these companies.
In a bid to reduce the country's import bill and meet the increasing power demand, Coal India has diverted increased quantities of the commodity to power plants, leaving non-power consumers such as the aluminium and cement industries parched for raw material, since the past six to eight months. Rail rakes have also been pulled out from ports and mine locations, leading to logistical issues for non-power consumers in transporting their raw material, said industry officials.
"Currently, we are importing coal and also buying power from outside. The impact of this shortage will wary from producer to producer depending on mines they have and access to coal," explained the official.
The domestic aluminium industry is going through this rough patch at a time when global aluminium prices have dropped below $2,000 per tonne in November, from about $2,500 per tonne in April.
"Market has seen the levels of $1,900 per tonne for aluminium earlier, too. But raw material supply and logistical issues were never a problem and this issue now is making the price fall look more painful," the official added.
That's not all. While domestic manufacturers struggle to keep their cost of production at reasonable levels amid falling global prices, increased imports of scrap due to the ongoing trade wars and sanctions is yet another hurdle the growing industry is facing.

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