Aluminium players expected to bid aggressively for coal blocks

Facing shortage of fuel and raw material, domestic primary aluminium players are likely to bid for captive coal blocks aggressively in the upcoming auctions, credit rating agency ICRA said today.

Their "operational challenges" stem from the deallocation of coal blocks allotted to them earlier and inadequate coal has forced these firms to operate at lower level, it said.

Hindalco and Sesa Sterlite are the major aluminium firms in the private sector and Nalco in the public sector.

"...Aluminium capacity is currently at a surplus compared to consumption. However, the utilisation rates of the recently commissioned smelters would continue to be constrained by raw material and fuel availability issues, narrowing gap between demand and supply," said ICRA.

"Recent de-allocation of captive coal blocks allocated earlier to aluminium players increases operational challenges for affected companies. In ICRA's opinion, primary aluminium players, therefore, are expected to be among the aggressive bidders for captive coal mines in the upcoming auctions," it added.

The government has kick-started the auction process for coal mines that were deallocated by the Supreme Court. It will put on offer 46 coal blocks and the auction of mines is due in February. Coal Minister Piyush Goyal recently said that over 100 bidders have already come forward to participate in the forthcoming coal mine auctions.

The rating agency expects international prices of the key non-ferrous metals such as aluminium and copper to remain weak, at least in near term.

"The weakness is a result of renewed concerns regarding the health of the global economy, especially the weak growth outlook of China, which is the largest consumer of base metals in the world," said Jayanta Roy, Senior Vice-President and Co-Head, Corporate Sector Ratings, ICRA.

Aluminium and copper prices would also be impacted by the surplus metals from fresh capacities that are likely to go on stream in the current year.

"While both aluminium and zinc prices have registered corrections in the current month after seeing improvements in the previous calendar year, copper prices have largely remained under pressure since the beginning of the second half of 2014," said Roy.

A growth of almost 6 per cent in the global aluminium consumption, coupled with stagnating production levels after curtailments of production capacities, had turned the global aluminium demand-supply position into a deficit in 2014.

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