The aluminum parks near the foundries will offer NALCO and Vedanta many advantages

NALCO and Vedanta have found in Odisha’s state agency IDCO a partner in park development projects. In the 223-acre park at Angul, the stake is in the ratio of 51% for IDCO and 49% for NALCO.

By Kunal Bose

A forward-looking producer of a ferrous or non-ferrous metal will most certainly seek to earn higher EBITDA by adding value to the primary metal. While Tata Steel has pioneered the value-added scope of ready-made doors and windows under the Pravesh brand and prefabricated homes called Nest, Hindalco has remained steadfast on the mission of developing value-added products. (VAP) both in range and in volume using its own primary aluminum.

In fact, the world had a first idea of ​​Kumar Mangalam Birla’s metal-aluminum strategy when he took the bold step in May 2007 to acquire Atlanta-based Novelis, the undisputed world leader in downstream and downstream rolled products. as a scrap recycler. There were doubts inside and outside the group then whether the $ 6 billion acquisition was justified. The performance of Novelis, especially in recent years and the technological power it brings to Hindalco, justifies Birla’s foresight.

While Birla has further strengthened the group’s global footprint in downstream VAPs by acquiring in April 2020 the American company Aleris, which prides itself on manufacturing special alloys for use in the aerospace and construction segments and construction, also in India, the emphasis remains on the construction of new downstream alloys. facilities. Hindalco chief executive Satish Pai has said on several occasions that the group will continue to pursue a strategy of decoupling from the volatility of global aluminum prices. According to him, more than 80% of the group’s consolidated EBITDA during the period 2020-21 has been disconnected from price fluctuations on the London Metal Exchange. Hindalco said it will further expand its VAP-focused business over the next few years with the aim of meeting “customized requirements for the varied and complex aluminum applications”. The company will invest up to Rs 10,000 crore to expand the flat rolling capacity in Hirakud, build a 34,000 ton extrusion plant in Silvassa and promote an entirely new unit in Mundra with a recycling facility.

As Tata Steel has done with steel, Hindalco is playing a pioneering role in promoting VAP. But how does Vedanta, which has the largest primary aluminum capacity in the country, including that of 51% owned BALCO or the majority government-owned National Aluminum Company (NALCO), manages to catch up by converting its primary metal in VAP as soon as possible?

Even though NALCO President Sridhar Patra swears by the company’s initial goal of supplying primary metal to manufacturers, he will help establish a technologically demanding alloy factory in the world. part of a joint venture with Mishra Dhatu Nigam. The planned 60,000-tonne joint venture will manufacture alloys for the defense, aerospace and automotive industries. At the same time, NALCO is making progress in realizing some downstream projects such as an aluminum foil factory and a rolled products unit in Dhenkanal for which it has started obtaining land from the Odisha government. All that is in the works, the company is already in several VAPs such as the foil stock, fan blades and some other flat rolled products. Also in alumina, NALCO manufactures special hydrates that are used as a filler in plastics, paper and paints.

Vedanta, which held half of the country’s aluminum production of 3.615 million tonnes (mt) in 2020-21, will give VAP a boost as it is the surest way to increase the EBITDA of the aluminum activity. As the group invests 6,611 crore to increase BALCO’s smelting capacity from 414,000 tonnes to around 1 tonne, this will simultaneously provide an impetus to expand VAP’s portfolio to the Chhattisgarh-based operation. As part of a revolutionary development for the aluminum industry in this country, Vedanta and NALCO will build aluminum parks next to their foundries to obtain added value to the primary metal by third parties. What might be the drivers for the two companies to seek downstream third party use of their molten metal practically next to their smelters?

When the parks are operational, the foundry promoters will have the assurance of a fixed amount of liquid metal sales to value-added processors. It is likely that there are technological and commercial agreements between the promoters of the park and the units operating there. NALCO and Vedanta have their foundries in Odisha and the local government wants them to create parks that will secure downstream investments and create jobs. Undoubtedly, the inspiration for building parks near smelters came from West Asia where Aluminum Bahrain (ALBA) and Emirates Global Aluminum have built a dynamic ecosystem (EGA) to power a wide range of downstream units with molten metal. Through a hot metal route, EGA transfers the molten metal to several industrial sites.

According to the CEO of Vedanta Aluminum, Rahul Sharma, “The large aluminum park next to our Jharsuguda smelter will bring an investment of at least Rs 2,000 crore in downstream units, which will create additional annual economic value. of 4,500 crore rupees for Odisha. In addition, the park for which the company pledges to provide 300,000 tonnes of liquid metal per year will create livelihoods for more than 100,000 people. Vedanta, says Shrma, will give the park’s VAP manufacturing units access to its center of excellence and R&D house. NALCO and Vedanta have found in Odisha’s state agency IDCO a partner in park development projects. In the 223-acre park at Angul, the stake is in the ratio of 51% for IDCO and 49% for NALCO.

Patra says: “The main attraction for investors in the park is the considerable reduction in logistics costs resulting from the operation of downstream units receiving molten metal from a dedicated hot metal route. Thus, transportation costs are reduced, as well as the high cost of aluminum remelting. The success of the aluminum fleets in India will also be supported by the promoter’s commitment to provide the units with a robust infrastructure and an assured supply of electricity and water.

(Former FT correspondent, author is now India correspondent for Euro Money, Metal Market Magazine)

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