Agencies”There will be a strong cost push factor which will be holding the aluminium prices. ,” added Chand.

In an interview with ET Now, TK Chand, CMD, Nalco, says aluminium price will continue to hold above $2200 per tonne. It may not cross $2300, but hover between $2250 and $2275.

Edited excerpts:

How does Nalco plan to become a one-million-tonne aluminium player by 2020?

Right now, our capacity is at 4.6 lakh tonne. Out of which, this year we may be producing around 4.2 lakh tonne and the coming year, that is 2018-2019, we are planning to ramp up the production to 4.6 lakh tonne or a little above that. We have already started working for a new smelter which will be 0.6 lakh tonne and added together, four year hence, it will be one plus million tonne for aluminium.

But alumina prices have really seen a stellar rally. What do you think is causing the prices to jump and is this move or uptick, sustainable?

Alumina price started moving from middle of August and continued to go up till middle of November. During these three monthsm it has increased by $150-$175 that is from the level of around $350 per tonne, it went to more than $500. In fact, At $527m Nalco got quite a high price in its tender and this increase mainly came because there was some supply of alumina in the market. In addition to that, China started cutting for winter season and there are reports that they will be going for further cut because of pollution and regulatory measures and this drove the market sentiment. That had been coupled with some disruption of bauxite supply in Australia, Brazil, and in China itself.

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All these three factors drove the market sentiment and smelters were apprehensive that adequate alumina may not be available for production though they made aggressive purchasing in the market and they started stocking up. That is why the prices rose very steeply above $500. But the prices started moderating from mid-November. Right now, it is hovering around $380-390. The price came down because the expected cut that Chinese refineries were expected to resort to did not happen.

With smelter capacity cuts in China and Europe, aluminium prices have spiked too. What do you think would be your underlying realisations?

As far as aluminium prices are concerned, the winter cuts are over and after the Chinese New Year, one factor that will give support to aluminium prices is that post February, there is a likelihood that in China, the demand pick-up may take place and already there has been signs of demand pick up in North America, in European countries, in Czech countries.

Because of the demand pick-up, some support will be coming there and the third thing that will be give aluminium prices support is the prices of alumina. Alumina prices are major components of the aluminium production cost. There the prices are remaining firm around $375 to $400 and with that carbon product prices like iron ore prices etc. have also gone up.

So there will be a strong cost push factor which will be holding the aluminium prices. In addition to that, it is estimated that the global supply of the aluminium in the next quarter and thereafter will be marginal and the global inventory also is at a lower level. Therefore, there is no possibility that inventory pressure will ease out the aluminium prices. I expect that the aluminium prices which have firmed up, will continue their uptick though not aggressively. It may move somewhere between $2175 and $2225 and after Chinese New Year, because of the demand factors, it may move up to $2250. I expect that the prices may move between $2175 and $2250 depending on the situation.

What will be the driver for aluminium prices? Better demand supply crunch or higher raw material prices like pet coke, tar and other things?

Pet coke prices have firmed up because in China also green pet coke production they have got it that is the reason why pet coke prices have gone up and again they are ramping up the production. That is yet another factor. We expect that pet coke prices will remain firm.

Now coming to CT Pitch prices. Because coal tar supply is in short supply, as this is the raw material for CT Pitch, its prices will also remain firm. If these two prices are remaining firm, then definitely iron ore prices will be remaining firm. Iron ore prices will contribute to the cost of production of aluminium. Therefore, this will be a cost push factor for aluminium prices to hold on to and as far as demand pick-up is concerned, right now, commodity markets have picked up and aluminium being a commodity market, will have its own share of pickup there also. So this demand push factor along with cost push factor will combine and hold the aluminium prices.

The price that is above $2200 will continue. It may not cross $2300, but hover between $2250 and $2275 and the average price of 2018 the aluminium prices will be around $2200. In 2016-2017 there was a strong movement of the aluminium prices and in 2017-2018 also there is an expectation that the same trend will continue.

For Nalco, alumina sales volume have also jumped 30% year on year, more than three times. What is the reason for this shift in sales?

This increase in revenue particularly in alumina came because of change in strategy. Earlier, we used to get into long-term agreement for sale of alumina in the international market. In case of a rising market, long-term agreement does not give much benefit because it is not close to the market and market is ever increasing.

Therefore, with the market going up, we changed our strategy of spot tenders. In the last three to four months, we found the prices increasing from $280 to as much as $527 which we would have lost if we have made long-term agreement.

Second thing is the growth in the volume because we could achieve 100% capacity utilisation of aluminium refinery. That also helped us in getting more revenue. These two factors have, in fact, increased the revenue from the aluminium segment.

You have also been inaugurating a bauxite mine at Panchpatmali. What is the capacity and how does it cater or contribute to your bauxite requirements as you are already operating at 100% of existing capacity?

The new mine is the south block of Panchpatmali mines which have a capacity of 3.1 million tonne. When the new refinery comes, the feed from this mine will be used. Till then, this mine will feed the existing refinery. The bauxite deposits are qualitatively very good and so it will increase the quality of the bauxite. This means, there will be reduction in the cost of production particularly less consumption of caustic soda which is a critical input. It is the main input in the cost of production of the alumina. Second, we are trying to increase and go little beyond the capacity of the refinery. We are expecting some volume growth and some cost reduction .

When will the Utkal D & E coal blocks be commissioned because we understand you are working towards early commissioning?

Utkal D & E block have been allotted to NALCO. The Government of Odisha has agreed to transfer the land to Nalco and once the land transfer starts, we plan to open the mine by 2018 end. Once the mine is opened, that will help us because right now, for our total production we require around seven million tonne of coal but we have FSA of 5.7 million tonne, out of which we get only around two million tonne. We source the rest from e-auction which costs us the double the price at Rs 1800-1900 per tonne. Sometime, it is more than that. Once the Utkal D&E block starts operation, we will be saving that money. In addition, since it will be our captive mine, its production cost will be less than what we pay under FSA to Coal India. Altogether, we may gain around Rs 2000 per tonne which will be a substantial amount and will significantly reduce our cost of production.