ET Now

In an interview ET Now, TK Chand, CMD, NALCO, speaks about the earnings and how things are panning out with the companmy. Edited excerpts:

Let us start by talking about the performance of aluminium prices. It has been a smart up move that we have seen there but given China’s ever increasing production, do you think it will sustain at this juncture?

Unlock Leadership Excellence with a Range of CXO CoursesOffering CollegeCourseWebsiteIIM KozhikodeIIMK Chief Product Officer ProgrammeVisitIIM LucknowIIML Chief Executive Officer ProgrammeVisitIIM LucknowIIML Chief Operations Officer ProgrammeVisit TK Chand: If we see aluminium prices in the last three years, in 15-16 it was somewhere around $ 1590 average of the year and in 16-17 it moved to around $1690 – $100 up and in the first quarter of 17-18, it is somewhere around $1900 to $1910 so there is steep upward movement of $200, but as you see the last couple of days, that aluminium prices have moderated because 2016 was a deficit year of aluminium in international market but 2017 is estimated to be little surplus, maybe marginal around 4 to 5 lakh tonne surplus will be there. So that is one factor which will be way against any firming of the prices and second thing in China, some of the low-cost smelters they have started commissioning and producing so probably that will also have a dampening effect and another thing which will have a dampening effect is wait and watch by the Chinese buyers. All these things will moderate aluminium prices and we expect that during 2017 it may not be a very steep increase as it has happened in the last two years. So aluminium prices by and large will hover around somewhere around $1890 to $1930 or $1940 that is what we are expecting. But the prices will remain moderately far because of the cost push factor.

Can you give me a sense between alumina and aluminium because the main stay of NALCO is not aluminium it is actually alumina. So what is happening in the alumina market?

TK Chand: In alumina market, if you see 2016, it was marginal surplus globally but this year it is estimated to be little surplus market with around one million tonne surplus because production is estimated to be 122.4 million tonne whereas consumption will lag behind by nine lakh to one million tonne so in case of alumina also prices have moderated if you see the last couple of days that prices some time back have gone as high as $350 but it have come down to $305-310 and currently share index is going around 302 and we are getting in our global tender around 310. So therefore alumina prices during the 2017 will also get moderated. But again, prices will hold on because of steep increase in its input cost that is caustic soda where the prices have increased by 11% and it will all depend that how the smelters in China they are waving, they start producing more natural, there will be a lot of demand for the alumina and prices may rally but currently the prices are moderate and it is holding on around $300 to $310.

You were making the point about alumni and aluminium prices and what is bound to impact Nalco more?

TK Chand: Nalco has a strong aluminium arm and our cost of production in alumna is also one of the lowest in the world. Our strength therefore is alumina and we are augmenting that particular arm by putting up a new refinery for which we have already got environment clearance. Our contracts are in position and we are will be starting work within a month or two.

What will be your projected capacity in million tonnes for this year?

TK Chand: This year we will be producing 100%. Our normative capacity is 2.1 million tonne and we will be achieving or may be even surpassing it. The new capacity in any case will come up three year or three and a half years hence and then it will increase by one million tonnes.

How much of your current capacity or production has already been sold in the futures market and how much are you still keeping into open for the spot market?

TK Chand: Last year we found that we have got a good realisation in the spot market as compared to the future market and this year we will continue with that keeping in mind the high volatility of alumina prices there. Generally we go 75% for future market and 25% for spot market, but last year we went 100% spot market and this year we are continuing with that. After observing the price trend for some time, we may take relook at our pricing strategy.

Just wondering once the ministry recently said that it is facilitating the company to enhance your alumna refinery as well as the capacity by about almost 1 million tonne at a cost of Rs 5,540 crore what exactly will be the government’s role in this will they be pumping this sum in the company directly, how will it work?

TK Chand: As far as role of government in expansion of the company is concerned they have indirect role. They only agree to the overall expansion plan of the company but as far as funding is concerned we have our internal resources, we have cash balance and cash surplus so therefore entire money will be put from our internal sources so there will be no funding by the government. As far as approvals are concerned we have already obtained the environment clearance. High level clearance from the government of Odisha has also been obtained and all regulatory clearances are over. We will be goind ahead with our our own.

Any reason for me to believe that you would increase your pidend payout because prices are looking strong, realisations are looking decent and capex is behind us?

TK Chand: Last year we gave a 56% pidend payout. This year we will be definitely increasing it a bit, but there are pressures of input cost this year. Although prices have firmed up well, inputs cost has also gone up very steeply. Caustic soda prices have gone up by 11%, petroleum coke’s prices have gone up by 30% and CTPC has gone by around 18%. All this has a moderating effect on the profitability, but nevertheless we will be giving a better pidend payout.

By the end of the year what will your volumes in aluminium and alumna be like?

TK Chand: We will be producing 100% capacity of alumna and it will be about 2.1 million tonnes. As far as aluminium is concerned, last year we utilised a capacity of 85%. This year we are moving to 95% to 100%. Therefore this year our total production will be at the level of 100%.