NALCO may invest $811 million to boost its alumina refining capacity

National Aluminium Co. (NALCO), India’s biggest state-owned producer, may invest INR 50 billion ($811 million) to boost its alumina refining capacity and revive earnings that are forecast to slide to a three-year low.

The company will enhance its annual ability to process alumina by 43 percent to 3.3 million tons over the next two years, and will export any surplus, Chairman Ansuman Das said in an interview. The planned expansion is the second in three years to benefit from higher margins offered by alumina, as prices of the end product aluminum slump.

“We’ll take a decision to set up a new alumina line by December,” Das said. “Lower metal prices have made selling alumina more lucrative.”

Nalco has shuttered a third of its 460,000 metric tons smelter because of a coal shortage and lower aluminum prices, causing earnings to decline in five of the last six years. Profit margin from alumina sales was 45 percent in the year ended March 31, while the lightweight metal used to make beverage cans and aircraft parts fetched no more than 6 percent.

Nalco is also seeking to form a venture with Gujarat Mineral Development Corp. to set up another 1 million ton refinery in the western state, Das said. The company will hold a 51 percent stake, while Gujarat Mineral has evinced interest for 26 percent, he said.

Alumina production may rise 17 percent to more than 2.1 million tons this fiscal year, while metal output may slide as much as 24 percent from last year’s 403,384 tons, Das said.

Nalco will benefit should Indonesia, one of the world’s largest producers of bauxite that exported 66 percent of its output this year, curb overseas sales of the ore. The Southeast Asian nation’s move to block outbound shipments of unprocessed ore in 2014 may raise prices of alumina and costs for global aluminum producers, Bloomberg Industries analysts Kenneth Hoffman and Andrew Cosgrove said in a report on Oct. 2.

Nalco decided to scrap plans for a $4 billion project to build a 500,000 ton aluminum smelter, power plant and coal mine in Indonesia, Das said, without giving details. The venture with the Indonesian government, which was announced in June 2008, got delayed after the company failed to secure a supply accord with MEC Coal Pte for the project in Kalimantan province.

The company expects aluminum premiums to fall starting next fiscal year if the London Metal Exchange’s proposed rule changes take effect starting April 1, increasing supplies in the spot market, Das said.

“While the outlook on prices is uncertain, I believe current levels are the bottom,” Das said. “There is a surplus in the global market, which is weighing on prices.”