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Hindalco's expansion nearing completion

By Our Staff Correspondent

MUMBAI, MAY 24. Hindalco, the Aditya Birla Group flagship company, has been moving aggressively towards its stated objective of being a non-ferrous metals conglomerate. With a strong presence in aluminium and an increasing presence in copper, the company has been steadily increasing its size and is today the market leader in both these metals.

Hindalco is the largest domestic aluminium player with a capacity of 3.42 lakh tonnes per annum, accounting for 46 per cent of the domestic aluminium market. It is also the largest Indian player in the semi-fabricated aluminium products segment with a 75 per cent market share with Indal.

The company is also the largest domestic copper producer, having produced 1.80 lakh tonnes in 2002-03. The position in this segment will further be strengthened with the completion of the ongoing expansion in the first half of the current year to 2.50 lakh tpa.

The distinction of being among the lowest cost aluminium producers globally comes from being fully integrated in terms of operations. It has low cost captive power — a critical factor in aluminium manufacturing as it accounts for a significant portion of manufacturing costs.

Hindalco's average cost of metal production hovers at $900 a tonne. Its metal production capacity in 2002-03 was 3.10 lakh tonnes. In the near future, A. K. Agarwala, whole-time director, said after the completion of the company's Rs. 1800 crore brownfield expansion, the cost per tonne would further come down by $50. In copper, Hindalco's smelter is dependent on copper concentrate, largely imported. But it has integrated operations and also owns a captive port and captive power plants. The company recently acquired mines in Australia which will go a long way in meeting its copper concentrate needs.

Kumar Mangalam Birla, Chairman, Aditya Birla Group, while announcing the acquisition of the Nifty mines in Australia earlier this year, had said, "The acquisition of Nifty, when completed, will elevate us to an integrated copper producer. Ownership in upstream mines is a strategic imperative for a smelter of our size which we intend to scale up further to a global size in the foreseeable future".

In copper, while players have increased their capacity, access to copper concentrates will determine the success in the sector. Producers are likely to be affected by duty differential between copper concentrate and copper which are at 5 per cent and 25 per cent respectively. This differential was earlier 33.5 per cent and is expected to further decline.

Birla Copper's acquisition of the Australian mines is through a wholly owned Australian subsidiary for a total equity consideration of Australian $79.8 million. In rupee terms, the acquisition works out to around Rs. 250 crores.

The 50 per cent interest of SRL in the Maroochydore joint venture is being acquired for A$10 million. The Maroochydore exploration project has established resources of 51 million tonnes of ore grading 1 per cent copper. This should go some way in taking care of the company's copper concentrate needs. According to Mr. Agarwala, brownfield expansion in copper is nearing completion, smelter capacity will increase to 2.5 lakh tonnes by the first half of the current year, although it will take two years for the mines bought in Australia to begin concentrate supply.

Indal is also expanding its smelter capacity at Hirakud from 30,000 tpa to 65,000 tpa. Alumina refining capacity will be up by 2.10 lakh tpa at 6.60 lakh tpa and power generation will be up at 769 MW (619 MW).

Although the demand for aluminium is estimated to increase at 7 per cent annually, any slowdown in key consuming sectors such as power, consumer goods or transport will lead to sluggishness in demand.

That being the case, demand growth is unlikely to be over 3-4 per cent. Domestic prices follow LME trends but also depend on customs duties and rupee depreciation.

India's large resources of high grade bauxite (basic alumina ore) deposits place it fifth in the world after Australia, Guinea, Brazil and Jamaica. Major bauxite reserves are concentrated on the east coast along Orissa and Andhra Pradesh.

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