In an interview with ET Now, BL Bagra, CMD, NALCO, gives his views on the company’s performance in 2012 amidst the shortage of coal supply. Excerpts:

ET Now: In September and October, the company had shut down 120 ports out of the 931 that you have owing to severe lack of coal availability. What’s the current status?

BL Bagra: The coal supply situation has improved a lot after mid October. In September owing to a lot of disturbances, we had to shut down 120 ports. As the coal supplies have improved, for the last two months we are receiving coal as per the linkage agreement.

But we have not yet started reopening the ports shut down in September as we are building up some stocks. We were left with only two days of consumption stock in September. Now full requirement is being met which we are using for increasing the stocks. Once a stock of 15-20 days consumption is reached, we will consider reopening the ports shutdown in September.

ET Now: Do you see further deterioration in margins? The domestic coal supply will continue to be tight, rupee is weak of course and raw materials continue to be high. Is there a cost pressure that you are kind of working to defend?

BL Bagra: Our cost of production is under pressure from various factors. In Q3, due to improved supply from Coal India, there is no pressure on the coal front. Other raw material like fuel oil, furnace oil, which are directly linked to the oil index & the rupee-dollar exchange rate, have led to some pressures on the oil & carbon fronts. The cost of production is going up. The improved situation of coal supply will help us. Q3 cost of production will not be more than Q2.

ET Now: Then give us a sense of how do you see the movement of aluminium prices as the street believes that prices will bounce back?

BL Bagra: The prices have been hovering around $2000 per tonne for quite some time, which is the bottom. Even at this price, almost 40-45% of the smelting capacity globally is operating at loss.

We have been maintaining that the longer prices remain at the same level, there will be a shut down of inefficient & high cost smelters. In Europe some high cost smelters have been shut down by the producers.

If it continues like this, there will be supply constraint, which will push the prices up. Due to the cost push factor reason, we feel prices will rebound from this level. 2012 will be definitely better than the present price level, which are almost the rock bottom prices.

ET Now: There is news doing the rounds that the company is looking to pick a 25% stake in MEC by March. Any update on that?

BL Bagra: It is related to our proposed power plant and smelter in Indonesia. In fact, the bidder has emerged as the preferred bidder for long-term coal supply agreement. One of the conditions of the bid was that the company may consider to pick up some stake in the coalmine, which the bidder has already offered.

Our board is looking into the transaction. We are hopeful to close this transaction by end of March. Of course acquiring the stake will take some time because of valuation issues.

ET Now: The growth for NALCO could depend on captive coal as a result of supply constraints. How are you preparing yourself for this issue and what are the strategies that you are looking at adopting for better backward integration?

BL Bagra: For backward integration, we are working on two fronts. First is coal. NALCO has been allotted a captive coal block nearby the power plant called Utkal E coal block. It is at an advanced stage of implementation.

We have secured all the regulatory permissions & pollution clearances from the environment & forest ministry and land acquisition is in process. We are hopeful that by 2012 end or early 2013, these captive coal blocks would start producing coal.

The captive coal block will be feeding into two units, which were recently set up as a part of our expansion project. The earlier eight units will continue to receive the coal from Coal India under the linkage agreement. Any shortfall from Coal India will be covered by our captive coal block.

Another key raw material is caustic soda. We are planning to set up our own captive production unit in some joint venture. I cannot share with you the details of our JV partner as it is in a nascent stage.

We hope that in the next three or four months, we will be finalising the joint venture. These two key raw materials will cover almost 40-50% of our backward integration.