Vedanta aims to reduce production cost to stay competitive
The cost reduction plan is being worked out mostly around raw material sourcing and cutting of power cost.
NEW DELHI: Mining and metals giant Vedanta aims to contain cost of its aluminium production to $1,500 per tonne from over $1,700 to overcome the cost pressure amid softening international rates. In the last 3-5 years, cost of production increased by 24 per cent, unnerving domestic producers who are struggling to cut cost of aluminium, trying to improve profitability at a time when more than half of global smelters are piling up losses on subdued prices at London Metal Exchange (LME).
After ascending multi-year highs in April 2018, the LME price of aluminium, which was $2,290 per tonne in May 2018, has come down to $1,740 in May this year. “LME at $1,800 is a pressure point. Prices falling below $1,800 have magnified the woes for Indian producers,” pointed out Ajay Kapur, chief executive officer, aluminium and power business of Vedanta.
After being associated with the cement industry for over 26 years, Kapur is ready to pull out all stops to unlock full potential of the aluminium and power business of Vedanta, which is a $10 billion asset with $6 billion revenue.
The cost reduction plan is being worked out mostly around raw material sourcing and cutting of power cost. With domestic coal falling short of demand, the dependence on imported coal has gone up, exerting cost pressures. “Power accounts for as much as 40 per cent of the total production cost. We aim to bring down this cost considerably as we now have our own captive power plants,” Kapur said. He also bats for elimination of cess on coal (GST compensation cess of `400 per tonne) to support the industry.
Notably, Vedanta’s focus on structural cost reduction has helped check its aluminium-making costs from spiralling. In the fourth quarter of FY19, the company succeeded in trimming it to $1,776 after two straight quarters (Q2 and Q3), where aluminium production cost shot up beyond $2,000.
Further, it will continue to enhance sourcing of local bauxite supplied by Odisha Mining Corporation (OMC) and ramp up Lanjigarh alumina refinery to 4 million tonnes (MT) by March 2020. Apart from the long-term supply agreement with OMC for sourcing of 2 MT of bauxite from Kodingamali mines in Odisha, its pact with Emirates Global Aluminium PJSC for supply of 12 MT of bauxite from the latter’s mines in Guinea are expected to ease the raw material constraints from this year.