As aluminium producers face headwinds like soft LME prices, soaring imports and slowing domestic demand from some end use industries, Vedanta is focusing on reducing costs and ramping up portfolio of value added products. Ajay Kapur, CEO (aluminium & power), Vedanta Ltd, talks to Jayajit Dash about Vedanta’s mid-term vision to cut aluminium cost to $1500 per tonne, pioneering production of primary foundry alloy, setting up a hot metal park and the push to exclude aluminium products from the ambit of RCEP. Edited excerpts:
Vedanta has set a target to contain its aluminium production cost to $1500 per tonne. By when and how will you achieve it?
While reducing the cost of production to $1500 per tonne is our mid-term vision, we have given a guidance of $1725 to $1775 per tonne for the current fiscal and are on course to achieving it. The costs in the aluminium industry are primarily driven by the cost of raw materials – alumina, bauxite and coal. We are focused on unlocking operational efficiencies and controlling the cost drivers to ensure lower production cost. Accordingly, we have secured robust long-term contracts for bauxite with global suppliers along with the domestic ones. Our world-class refinery at Lanjigarh in Odisha, which converts bauxite ore to alumina, also helps control costs. We also maintain a healthy inventory at our plants to neutralize any supply-side exigencies.
LME aluminium prices are hovering around $1700. What does this mean for domestic aluminium producers? Do you think global aluminium prices will strengthen in the near term?
The global economy has been volatile over the past quarters owing to several uncertainties globally and escalating trade wars. LME prices reflect these global trends as well. Like every commodity, we expect LME to rebound. It is important to bear in mind that aluminium is the second-most important metal in the world and finds critical applications in key sectors. From that standpoint, the demand for aluminium will only surge. Its light weight, recyclability, corrosion-resistance and versatility as a green metal make it the metal of the future. As the country’s leading aluminium producer, we are well-positioned to capitalise on this opportunity.
The country’s aluminium consumption has taken a hit due to slowing demand from end-user industries. How does Vedanta plan to overcome it?
Aluminium is a metal of strategic importance for the country and is important to nation building. India's aluminium demand grew at 10 per cent in 2018-19, fuelled by the GDP growth and the growth of aviation, automobiles, infrastructure and electrical sectors. Some amount of headwind in the economy is to be expected. Businesses such as ours that take a long-term view are equipped to take these in our stride. As India strides towards her ambition of becoming a $5 trillion economy, consumption patterns will grow, and with it, aluminium consumption is bound to grow. Today in India, per capita consumption of aluminium is at just 2.5 kg, while the world average is 11 kg and in China it is 24 kg. However, over the next five years, India’s demand for aluminium is expected to reach over 7 million tonnes at double-digit growth rates. The Indian primary aluminium producers have currently invested over Rs 1.2 trillion to enhance aluminium production capacity to four million tonnes per annum (mtpa) in the country to cater to the increasing demand. Vedanta proposes to address this through a versatile product portfolio, new product development and innovation. Vedanta has invested in development of high-quality value-added products. As a result, Vedanta now has a wide range of offerings consisting of wire rods, billets, primary foundry alloy (PFA), rolled products and ingots and is a leader in most of these product categories. The PFA for instance, is being produced only by Vedanta in the country, and was imported till we did so. Wire rods are mainly used in electrical application. Billets cater to the buildings and construction sector, transport sector and consumer durables sector. Primary Foundry Alloys (PFA) find major application in automotive industries for making alloy wheels. These value-added aluminium products effectively take Vedanta a step closer to the end customer in the value chain and are enabling the company to fetch better product premiums.
How has the slump in the automotive sector and subdued economic growth affected your sales performance? Will it have any bearing on your gross revenues and profitability?
The automotive sector in India has been facing a slowdown over the past months, but they usually operate through long-term contracts through their ancillary units. Vedanta has limited exposure to the automotive sector in India and the slowdown has no decipherable impact on Vedanta’s sales and performance.
Flat-rolled aluminium products are gaining traction with a consensual forecast that it will be in the growth territory through 2025. Does Vedanta intend to branch out into this segment?
The usage of aluminium flat rolled products defines the degree of sophistication of an economy. Flat rolled products cater to a niche market in India as of now, but that is also evolving. As our economy matures, the consumption of flat rolled products will increase in India over the years. Vedanta already maintains a presence in rolled products segment through its 70 kilo tonne facility at its BALCO smelter in Chhattisgarh.
How do you plan to expand your downstream/ valued-added products portfolio?
Currently, value-added products form nearly 45 per cent of our sales mix, but we plan to take it further. Vedanta is working with various stakeholders of the value chain like auto-industry players, façade manufacturers, extruders and rolling aluminium customers for advanced R&D and production of customised aluminium alloys which can cater to industry-specific needs in the aspects of strength and specialised functions. The company has already started working with all top automobile original equipment manufacturers (OEMs) over the last few months for the supply of primary foundry alloy. The company is in talks with the Odisha government to put up a hot metal park in Jharsuguda, in the vicinity of our smelter, which is also one of the biggest aluminium smelters in the world outside China. The plan is at an active discussion stage. So, in a nutshell, we are rapidly moving up our product portfolio into value-added products.
The deluge of cheaper aluminium imports and the ongoing RCEP negotiations have unnerved aluminium companies. Have you got any favourable response from the government on duty structure?
This year, ahead of the Regional Comprehensive Economic Partnership (RCEP) meeting, the aluminium producers have asked the Commerce Ministry to protect the industry from cheaper imports by excluding aluminium from tariff reduction commitments in the RCEP negotiations. The industry is basically requesting for a relook at the FTA, specifically for a strict Rules of Origin criterion that is needed to check cheaper imports into India. The industry is also requesting the inclusion of aluminium and all its products in the negative list of imports under RCEP. We have been assured by the government that they will give due consideration to the matter.
Vedanta Aluminium has achieved highest production figures and has emerged as a leader in production terms. How do you intend to exploit this position and chart future course?
Vedanta’s aluminium business is the largest producer of aluminium in the country. In FY19, Vedanta Aluminium clocked 1.95 mt (million tonnes) production, logging 17 per cent growth year-on-year. This is, I’m told, the highest ever production by any company in the history of India. The biggest reason for this achievement is the way the business has ramped up its capacities at its smelters at Jharsuguda and BALCO and at its alumina refinery at Lanjigarh (Odisha) by bringing in operational efficiencies. But more importantly, this landmark achievement will take Vedanta a step closer to becoming a trusted partner of the government. Supporting the government to enable India attain self-sufficiency is one of our key business priorities. Self-sufficiency in aluminium production is vital to national security as the metal finds applications in key industries such as aerospace, defence, transportation, building and construction, space exploration, electrical distribution etc that also support the government’s visionary initiatives such as Make In India, Smart Cities, Power for All etc. We want to help build India’s domestic aluminium sector and position it as one of the global leaders with substantial contribution to the country’s economic growth.
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