From Financial Times - IndiaLack of bauxite resources to hinder aluminium projects
Kunal Bose / December 14, 2010, 0:37 IST
One will not fail to notice the convergence of thoughts of our mines minister B K Handique and Klaus Kleinfeld, CEO of the world’s largest producer of the white metal, Alcoa, on the long-term demand and price outlook for aluminium. Both believe the use of aluminium, favoured for its light weight, malleability and recycling qualities, will continue to grow strongly through 2020. This will ensure the shifting of balance of supply and demand in favour of aluminium makers.
It is not comforting that while we have ownership of the world’s fifth-largest bauxite resources of well over three billion tonnes, including recoverable reserves in excess of 2.5 billion tonnes, and our economy is growing at close to a double-digit rate, the per capita aluminium consumption remains a low 1.3 tonnes. But, as we have seen in recent times, especially in the case of China, the metal use of an economy rises significantly when infrastructure and construction development is given a place of pride in the growth programme.
When Handique says our aluminium production will take a major leap to five million tonnes by 2015 from 1.3 million tonnes now and demand, then, will not trail supply, he is sure about the metal finding increasingly greater application in the earlier mentioned two sectors and also in transport. However, the electrical sector will account for the largest share of aluminium use, unlike in developed economies.
The building of nuclear power plants and our ambition to build aircraft locally are the other potentially large white metal use outlets. In fact, as Kleinfield says, a growth industry like aerospace will need more and more aluminium globally.
Let’s take a count of how India will become a producer of five million tonnes of aluminium in another five years. After all, aluminium is a long gestation industry, particularly because here it necessarily involves establishment of mines linkages. Not only the Niyamgiri fiasco, of which the victim is the Vedanta group, but every other bidder for bauxite deposits, be it in the government or the private sector, will invariably be subject to the test of patience and excruciating delays in getting mines allotment and related clearances.
One which has come up trumps in the patience test and has built three greenfield smelters with a capacity of 359,000 tonnes each and two alumina refineries of 1.5-million-tonne capacity each is Hindalco. At the same time, the country’s leading copper-to-aluminium group is expanding the capacity of its Hirakud smelter to 360,000 tonnes from 155,000 tonnes. Hindalco Chairman Kumar Mangalam Birla says the Rs 40,000-crore investment will make the group, including Novelis, owner of 1.8 million tonnes of aluminium capacity.
The central government-owned National Aluminium Company (Nalco) has quite a few capacity development ideas to be realised in the country and abroad. But, Nalco Director B L Bagra makes us understand that the first one to get off the ground will be the third-phase expansion at its existing sites to lift capacities of the smelter, refinery and power complex to 630,000 tonnes, three million tonnes and 1,700 Mw, respectively. To build the second greenfield smelter in Orissa, the company needs support of the state administration in acquiring new deposits and identifying a site alternative to Jharsuguda, where it has been denied access on environmental grounds.
According to Handique, the country will need 10 million tonnes of aluminium by 2020. If supply of this order is to be had from local sources, then Orissa, where the country’s major portion of bauxite is found, and Andhra Pradesh will have to work as true facilitators of aluminium capacity development. Globally, large physical stocks, idle high-cost capacity waiting for recommissioning on the back of sufficient recovery in aluminium prices and some large new smelters getting commissioned outside the West will explain why aluminium is now selling at over 30 per cent discount to the July 2008 record prices. Aluminium is, however, doing a lot better now than the time when the industry was brought to its knees in the wake of the damaging recession.
Kleinfeld tells Financial Times that as we go forward, it will become increasingly difficult to “find new high quality mines to produce bauxite and sites for new refineries”. Is he not suggesting that electricity availability and its cost will be important determinants of smelter sites? Electricity constitutes up to 40 per cent of the cost of making aluminium. This explains why Nalco is looking at several offshore sites where the power cost for building smelters is low. Indonesia, where coal-fired electricity comes cheap, should be Nalco’s first overseas outing, provided everything falls in place.
Access to good bauxite deposits and low cost power are compelling considerations for Alcoa to take 25.1 per cent ownership of Ma’aden aluminium project in Saudi Arabia. A $10.8-billion venture, the project scope includes four-million-tonne bauxite mining, a 1.8-million-tonne refinery, a 2,400-Mw power complex and a 740,000-tonne smelter. Kleinfeld is right; capital will not hinder an aluminium project in future, but scarcity of bauxite resource and ideal sites well could.