India’s aluminium needs to become competitive and the joint auction of bauxite and coal blocks announced by the government is a welcome step in this direction said TK Chand, President of Aluminium of India (AAI) in an exclusive interview with Davis Index.
Here are the excerpts of the conversation in which TK Chand highlights the challenges faced by India’s primary aluminium producers.
Primary metal consumers are struggling to resume production and are complaining about the disruption in the raw material supply chain, what is the situation on the ground?
T K Chand: It is a fact that supply chains have been disrupted due to the lockdown. Dispatch of material through rail is by and large satisfactory, but dispatches through truck has been severely impacted. With the easing of the restrictions and resumption of road transport, the situation is likely to improve but the restoration of normalcy may take some more time. The central and state governments need to take steps to make material flow smooth by rail and road.
China is banking on the benefit of coming out of COVID-19 situation ahead of India. China has entered the recycling market, while India is facing challenges in sourcing scrap. Do we see a similar impact on primary metal demand that India used to fulfil?
TK Chand: Though China has got an advantage of coming out of the pandemic early, India is likely to catch up by leveraging anti-Chinese sentiment prevailing in the world. As such, during the lockdown from March 22 till date, there is no significant reduction in the production of primary Aluminium producers. Export of primary Aluminium is more than the last year’s level.
What are the challenges ahead of primary aluminium producers in India and how can government intervene?
TK Chand: Going ahead, primary aluminium producers in India have three major challenges, we can call them 3C – Cost Competitiveness, climb up in the Aluminium value chain and capacity building to meet growing domestic demand for Aluminium. The government and the aluminium industry should work together to make the industry globally competitive. The cost of aluminium production in India is higher due to the high power cost. To reduce the power cost, Indian aluminium producers should have captive coal mines. The government decision to conduct a joint auction of bauxite and coal block is a welcome step in this direction. The existing gap in coal supply to individual producers need to be filled by additional Fuel Supply Agreement (FSA) with Coal India.
The government should also give a moratorium on Renewable Purchase Obligation (RPO) for the next two years to support highly power-intensive industry like aluminium. India has an advantage in key raw materials like bauxite and it should not be lost by fixing high base bauxite prices instead it should be on a cost-plus basis.
Tariff codes of railways need to be rationalised to reduce logistic cost. Code of Bauxite should be lower to class 145 from class 160; Alumina from class 180 to lower class 170 and Red Mud from class 130 to lower class 100.
Provision for loan restructuring / long-term financing of loan can be thought of to promote investment in the aluminium sector. Incentive may be given to spend capex in setting up new facilities and/or modernising the existing once.
To protect aluminium MSMEs import duty on cheap end-use products from China and other countries in the series 7603 to 76016 should be increased by 5-10pc. Similarly, to prevent a surge of import of aluminium, Quantitative Restriction (QR) may be imposed.
While the government needs to take a call on the requirement of aluminium Industry, the industry on its part needs to take up the responsibility of promoting downstream units. Mother plants should handhold and mentor MSMEs to come up by providing managerial and technical support, and brand name for marketing finished products.
Considering the downward spiral of aluminium prices on LME, major aluminium producers have resorted to various strategies? Do you think these steps are being taken considering the demand for specific grades in the market?
TK Chand: Aluminium prices are completely market-driven. London Metal Exchange (LME) prices are taken as the base. Factors like cost of production (CoP), demand and supply, landed cost of import, inventory and sales, the market position of end products, price declared by competitors and inputs shared by marketing managers are considered while fixing prices. However, demand is the prime mover while announcing the pricing.
Primary aluminium producers around the world are shifting to VAPs to avoid erosion of profit margins. Do we see a similar strategy being implied by Nalco, Balco and Hindalco?
TK Chand: Climbing the value chain will be a compulsion for primary producers of aluminium in India as these producers are in fourth cost quartile in terms of CoP. Hindalco is in VAP production. Balco and Nalco need to move towards value-added production. Nalco is in the process of increasing wire rod production and will be setting up new wire rod mills.