ET Now: Lets talk about Nalco’s surge on the LME during Q4?
Sridhar Patra: It reached around 2,565 on LME in Q4, but could not sustain for a long period at that price and came down to 2,400. Now it is hovering around 2,400 to 2,500. Market speculation is that the price will prevail in both 2021 and 2022 at around 2,250.
Alumina prices have started increasing, but the up move has not been as strong as, for instance, in aluminium. What is the outlook there?
It is basically based on the LME, where traders from across the globe trade. So, a trade war between any two countries will have some impact, because it is the most preferred metal for multi-purpose use. Whether it is China’s trade wars with Australia and US, or Russia imposing import duty, all these things will have impact.
Supply and demand forces are also major factors. Industries that were shut down during the pandemic have not yet gone back to full-fledged functioning. There are other factors at play too.
We don’t expect 2,500 to sustain in the long term. 2,300 looks like a more likely level. In this fiscal year, we expect that the demand will be more than the production because when industries restart, they will be requiring more metal.
In anticipation of that, traders are likely to stock adequate quantum for the entire supply chain. Due to this, demand is likely to be slightly more than supply.
Your cost of production has been quite low, but this is only on account of the onetime reversal of renew obligations that we saw with Odisha Electricity Board. Do you see input cost pressures easing going forward?
The cost of production is basically an internal matter. During the year 2021, we have taken various strategic decisions with calculated risk. And we have been remunerated.
The Utkal E mines lease was recently granted to you. With that and Utkal D, how much raw material is produced captively now? How would it help you in hedging against commodity inflation?
For the present size of smelter at around 4.6 lakh tonnes of capacity, we normally require around 70 to 75 lakh tonnes of coal. At present we have bridge linkage, coal linkage and we are also depending upon the e-auction.
After Utkal D and E, the full-fledged capacity will be 4 million tonnes. Talking of the cost of production vis-à-vis the cost of purchase from the MCL and other subsidiary of Coal India, there will definitely be a margin of Rs 200 to Rs 300.
That will add to the profits, apart from reducing our power costs further. It will do two things — one, is it will increase our bottom line, and two, it will reduce the volatility for the us.
What is the targeted timeline for all of these, including the Utkal D one million tonne alumina refinery? There some investor concerns on slow execution?
We have a capex target of Rs 1,800 crore during this current financial year. The main thrust is on two fronts.
In case of our fifth stream refinery expansion, the cash outflow is likely to be around Rs 1,100 crore. Another Rs 600 crore may be spent on modification and replacement of our existing operating plant.
