Aluminium parks close to smelters will give NALCO, Vedanta multiple benefits
By Kunal Bose
A forward looking producer of a ferrous or non-ferrous metal will most certainly be seeking to earn a higher EBITDA by way of adding value to the primary metal. If Tata Steel has pioneered value addition to the extent of ready to use doors and windows under the brand Pravesh and prefabricated houses called Nest, Hindalco has remained unflinchingly on the mission to grow value added products (VAPs) in both range and volume using its own primary aluminium.
In fact, the world first got an idea of Kumar Mangalam Birla’s aluminium metal strategy when he made bold in May 2007 to acquire the Atlanta based Novelis, the uncontested global leader in downstream rolled products and as scrap recycler. There were doubters then within and outside the group whether the $6-billion acquisition was justified. Novelis performance, particularly in recent years and technology might that it gives to Hindalco, are vindication of Birla’s foresight.
As Birla further reinforced the group’s global footprint in downstream VAPs by acquiring in April 2020 the US-based Aleris, which prides itself on making special alloys for use in aerospace and building and construction segments, within India too, the focus remains on building new downstream facilities. Hindalco managing director Satish Pai has said on a number of occasions that the group will continue to pursue a strategy to delink itself from volatility in global aluminium prices. According to him, more than 80% of the group’s consolidated EBITDA during 2020-21 was delinked from price swings on the London Metal Exchange. Hindalco says it will further expand its VAP oriented business in the next few years with orientation to meeting “customised requirements for varied and complex applications of aluminium.” The company will be investing up to Rs 10,000 crore to expand flat rolling capacity at Hirakud, build a 34,000 tonne extrusion plant at Silvassa and promote a greenfield unit at Mundra with recycling facility.
As Tata Steel has done with steel, Hindalco is playing a trailblazing role in promoting VAPs. But how does Vedanta, which owns the country’s largest primary aluminium capacity, including that of 51% owned BALCO or the majority government owned National Aluminium Company (NALCO) do the catch up in converting their primary metal in VAPs in the quickest possible time?
Even while NALCO chairman Sridhar Patra swears by the company’s original objective to provide primary metal to fabricators, he will be involved in giving shape to a highly technologically demanding alloy plant in a joint venture with Mishra Dhatu Nigam. The planned 60,000 tonne JV will make alloys for use in defence, aerospace and auto sectors. At the same time, NALCO is making progress in giving shape to some downstream projects such as a foil plant and a rolled products unit in Dhenkanal for which it has started getting land from Odisha government. What all are in the pipeline, the company is already in several VAPs such as foil stock, fan blades and some other flat rolled products. In alumina too, NALCO makes speciality hydrates used as filler material in plastic, paper and paint.
Vedanta, which had half the share of the country’s aluminium production of 3.615 million tonne (mt) in 2020-21, is to give a thrust to VAPs since this is the surest way to boost EBITDA from aluminium business. As the group is investing `6,611 crore to raise BALCO’s smelting capacity by 414,000 tonnes to around 1 mt, it will simultaneously give a push to expand the VAPs portfolio at the Chhattisgarh based operation. In a breakthrough development for the aluminium industry in this country, both Vedanta and NALCO are to build aluminium parks adjacent to their smelters to get value added to primary metal by third parties. What could be the drivers for the two companies to seek third party downstream utilisation of their liquid metal virtually next to their smelters?
When the parks become functional, the promoting smelting groups will have the assurance of a fixed amount of sale of liquid metal to value adding converters. There are likely to be technological and marketing arrangements between park promoters and units operating there. Both NALCO and Vedanta have their smelters in Odisha and the local government wants them to create parks that will secure investment in downstream and create employment. Unarguably, the inspiration for building parks close to smelters has come from West Asia where Aluminium Bahrain (ALBA) and Emirates Global Aluminium have built a (EGA) vibrant ecosystem of feeding a wide range of downstream units with molten metal. Through a hot metal road, EGA transfers molten metal to multiple industrial sites.
According to Vedanta Aluminium CEO Rahul Sharma, “The large aluminium park to come up next to our Jharsuguda smelter will bring in investment of at least Rs 2,000 crore in downstream units that is to create an annual incremental economic value of Rs 4,500 crore for Odisha. Moreover, the park for which the company is making a liquid metal supply commitment of 300,000 tonne a year will create livelihood for more than 100,000 people.” Vedanta, says Shrma, will give VAP manufacturing units in the park access to its centre of excellence and R&D house. Both NALCO and Vedanta have found in Odisha state agency IDCO a partner in park development projects. In the 223 acre park at Angul, the equity ownership is in the ratio of 51% for IDCO and 49% for NALCO.
Patra says: “Principal attraction for investors in the park is considerable logistics cost saving emerging from operating downstream units receiving molten metal from a dedicated hot metal road. Thereby transportation cost is cut so also the expensive cost of aluminium remelting.” The success of aluminium parks in India will also be underpinned by promoter commitment to offer the units a robust infrastructure and an assured supply of electricity and water.
(A former FT correspondent, the author is now India correspondent for Euro Money publication Metal Market Magazine)
Check the source here –Source, Financial Express.