The Hindu Business Line : Hindalco sees tough times ahead

“The aluminium industry will continue to experience cost push, while copper business will continue to face challenges on account of poor concentrate availability and low treatment charge and refining charge”.

Suresh P. Iyengar

Mumbai, Sept. 5 Hindalco Industries has forecast tough times ahead with significant rise in production costs of aluminium and poor copper concentrate availability.

“The aluminium industry will continue to experience cost push, while copper business will continue to face challenges on account of poor concentrate availability and low TcRc (treatment charge and refining charge),” said Mr D. Bhattacharya, Managing Director, Hindalco Industries, in the Management’s Discussion and Analysis, Annual Report 2007-08.

Key macro-economic value drivers will continue to remain volatile (in 2008-09) in a turbulent world. This will demand strong risk management expertise which the company has developed and will continue to hone, he added.

Terming repayment of the bridge loan of $3 billion raised for acquisition of Novelis as immediate task in the turbulent market condition, Mr Bhattacharya said the challenge is to do this (fund raising) while preserving the balance sheet strength to grow.

Production cost to rise

In 2008, the Chinese aluminium demand though expected to remain strong, the growth rate is expected to decline marginally from calendar year 2007 levels. The US demand weakness will continue. In India, thrust on power sector spending will spur the aluminium demand. In the recent past, the aluminium industry is witnessing production cut downs due to power shortages in various parts of the world.

Higher input costs such as bauxite, fuel oil, coal tar pitch and caustic soda, diminishing availability and rising costs of various fuels/power will continue to push operating costs up, Mr Bhattacharya said.

“A reasonably strong demand along with supply constraints and rising cost is expected to keep the prices strong. Rupee exchange rate will continue to have a significant bearing on domestic realisations. The company will strive to continuously improve its performance despite strong inflationary pressures,” he said.

Copper

Strong demand from emerging economies notably BRIC (Brazil, Russia, India and China) countries would offset the US consumption weakness.

Concentrate availability is expected to remain tight on account of delay in the expected new mine capacities due to difficult terrain, associated risk factors and socio-political factors. Higher capital costs, declining ore grades and labour related issues in some of the major copper producing countries are expected to restrict the availability and put TC/RC (treatment charge and refining charge) depressed.

Investments

The company has spent Rs 887 crore on various expansion and efficiency improvement projects. Going forward, this amount is slated to rise considerably as per planned investments in brownfield and five greenfield projects.

The brownfield expansions at Muri from 110,000 tonnes per annum (tpa) to 450,000 tpa and Hirakud Smelter and Power expansions from 1,00,000 tpa to 143,000 tpa are on the verge of being fully commissioned.

Plans to extend the Alumina refining capacity at Belgaum from 350,000 tpa to 650,000 tpa are on hold awaiting government approvals relating to bauxite mines, he added.

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