Industry Info

Aluminum Producer Mulls $811 Million Refinery: Corporate India

National Aluminium Co. (NACL), India’s biggest state-owned producer, may invest 50 billion rupees ($811 million) to boost its alumina refining capacity and revive earnings that are forecast to slide to a three-year low.

The company will enhance its annual ability to process alumina by 43 percent to 3.3 million tons over the next two years, and will export any surplus, Chairman Ansuman Das said in an interview. The planned expansion is the second in three years to benefit from higher margins offered by alumina, a white powder derived from the ore bauxite, as prices of the end product aluminum slump.

“We’ll take a decision to set up a new alumina line by December,” Das said. “Lower metal prices have made selling alumina more lucrative.”

Nalco, as National Aluminium is known, has shuttered a third of its 460,000 metric tons smelter because of a coal shortage and lower aluminum prices, causing earnings to decline in five of the last six years. Profit margin from alumina sales was 45 percent in the year ended March 31, while the lightweight metal used to make beverage cans and aircraft parts fetched no more than 6 percent.

The metal fell 7 percent on the London Metal Exchange since April 1, making large smelting capacities across the globe unprofitable.
Gujarat Venture

Nalco is also seeking to form a venture with Gujarat Mineral Development Corp. to set up another 1 million ton refinery in the western state, Das said. The company will hold a 51 percent stake, while Gujarat Mineral has evinced interest for 26 percent, he said.

Nalco’s profit is set to drop 8 percent in the year ending March 31, according to the median of 17 analyst estimates compiled by Bloomberg. Net income fell 30 percent to 5.9 billion rupees last fiscal year. Net income in the quarter ended June 30 declined 28 percent to 1.6 billion rupees.

Shares of the company based in Bhubaneswar in the eastern state of Odisha fell as much as 1.2 percent to 33.05 rupees and traded at 33.20 rupees as of 9:34 a.m. in Mumbai. The stock has slipped 32 percent this year compared with a 1.6 percent gain in the benchmark S&P BSE Sensex (SENSEX) index of Indian stocks.

Alumina production may rise 17 percent to more than 2.1 million tons this fiscal year, while metal output may slide as much as 24 percent from last year’s 403,384 tons, Das said.
Indonesia Curbs

Nalco will benefit should Indonesia, one of the world’s largest producers of bauxite that exported 66 percent of its output this year, curb overseas sales of the ore. The southeast Asian nation’s move to block outbound shipments of unprocessed ore in 2014 may raise prices of alumina and costs for global aluminum producers, Bloomberg Industries analysts Kenneth Hoffman and Andrew Cosgrove said in a report on Oct. 2.

Nalco decided to scrap plans for a $4 billion project to build a 500,000 ton aluminum smelter, power plant and coal mine in Indonesia, Das said, without giving details. The venture with the Indonesian government, which was announced in June 2008, got delayed after the company failed to secure a supply accord with MEC Coal Pte for the project in Kalimantan province.

The company expects aluminum premiums to fall starting next fiscal year if the London Metal Exchange’s proposed rule changes take effect starting April 1, increasing supplies in the spot market, Das said. Premiums are paid by the buyers on top of the exchange’s prices for immediate delivery.
Global Glut

About 66 percent of aluminum producers would be losing money because of declining premiums should the LME approve rules to cut waiting times at its warehouses, JPMorgan Chase & Co. said in a report e-mailed on Aug. 30. About 60 percent of the industry is losing money even with higher premiums, according to that report.

“While the outlook on prices is uncertain, I believe current levels are the bottom,” Das said. “There is a surplus in the global market, which is weighing on prices.”

Aluminum stockpiles total about 14 million tons, including 5.36 million tons in warehouses monitored by the LME, according to Edinburgh-based researcher Wood Mackenzie Ltd. As much as 80 percent of the inventory is tied up in financing transactions, and unavailable to consumers, Societe Generale SA estimates.

Global aluminum costs were inflated by $3 billion in the past year through “unfair” rules that allow Goldman Sachs Group Inc., JPMorgan and other warehouse owners to slow deliveries, Tim Weiner, a global risk manager at Chicago-based MillerCoors LLC., said in a written testimony before his appearance July 23 at a U.S. Senate subcommittee hearing in Washington.