Vedanta-owned Balco shuts rolling mill at Korba over slump in metal prices

Vedanta-owned Bharat Aluminium Co, one of India's top private sector aluminium producers, has shut its rolling mill at Korba in Chhattisgarh due to a slump in metal prices and competition from cheap imports from China.

Vedanta's alumina refinery at Lanjigarh in Odisha, which has been struggling to source its main raw material, bauxite since inception, could be next in line to meet a similar fate, top sources with knowledge of the situation at the company.

For both these facilities reeling under shrinking margins, the devaluation of the Chinese currency last week has come as the last straw as it threatens to increase imports.

"We have been forced to take this tough decision (on closing the rolling mill) last week as the situation is economically untenable. In the backdrop of a crash in aluminium prices, the situation has become alarming," said Abhijit Pati, chief executive of Vedanta's aluminium business. "The government needs to step in and protect the domestic industry."

The shutdown is likely to affect 700 direct and indirect jobs.

Vedanta's Lanjigarh refinery operates at barely a quarter of its capacity and depends largely on bauxite imports from Guinea, South Africa and Southeast Asia to keep it going. In the current situation, this arrangement could be rendered unfeasible, an executive said.

Balco's plight is similar to that of other players in the domestic aluminium industry. Cheap imports from China and the Middle East have eroded the market share of the domestic players. In fiscal 2015, imports accounted for 56 per cent of the Indian market. While imports have surged by more than 77 per cent to 1,563 kilo tonnes between fiscal 2011 and 2015, sales of domestic companies have shrunk 1 per cent, the Aluminium Association of India said in a recent news release.

Last week, aluminum prices hit a six-year low on higher Chinese production. Prices have dropped nearly 40 per cent to around $1,600 per tonne in 2015 from $2,662 in April 2011. Prices are expected to fall further to $1,500 as the world grapples with an almost 3 million tonne surplus in China, according to a recent report by Goldman Sachs Commodities Research.

With its low-cost production model, China which is estimated to control half of global output, increased exports by 35 per cent in the first half this year. The country dominates the estimated $100 billion aluminium industry which produces the metal for cars, cans, railway coaches, airplanes and even wearable smart devices like the Apple Watch.

"The future of aluminium industry in India is at stake," a veteran industry watcher said. With domestic demand predicted to rise 10-12 per cent over the next decade, producers have responded to the government's Make in India campaign by lining up an investment of Rs 1.2 lakh crore to ramp up production and double capacity to 4.1 million tonnes. "If companies are forced to operate at half of their installed capacities in absence of government protection, the entire investment could be in jeopardy," a metals sector analyst said.

Indian producers under the Aluminium Association of India have been urging the government to increase import duty to 10 per cent from 5 per cent. However, unlike in the case of steel where the government raised customs duty twice by 2.5 per cent each in the past two months, there has been no efforts to protect the local aluminium industry.

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