Aluminium makers go big on expansion plans to lower costs, boost margins

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As domestic demand for aluminium continues to surge, India's leading producers—Vedanta, Hindalco and NALCO or National Aluminium Company—are intensifying efforts to secure long-term access to crucial inputs like bauxite and coal. The companies are also basing their expansion strategies around cutting production cost and safeguarding themselves against market volatility and, thereby, boosting margins.

Being capital-intensive in nature, a lower cost of production is essential for such companies as it helps them to remain competitive, profitable, and resilient in a volatile global market. The companies have, thus,  charted expansion plans with investments worth thousands of crores of rupees to support  volume expansion and vertical integration . Vedanta in its annual report flagged that it has spent over Rs 12,000 crore for its aluminium business expansion activities while metals major Hindalco has set aside Rs 8,000 crore for its upstream projects in Odisha for the current financial year.

Ratings firm Crisil expects that  the increased earnings will aid prudent funding of "~Rs 15,000 crore aluminium capex in fiscal 2025 (~Rs 11,000 crore in fiscal 2024) for completion of ongoing smelter capacity expansion by ~10% and improving forward and backward integration to sustain global cost competitiveness".

The strategy towards ensuring backward integration would also help some of the players reduce their dependence on imports of  bauxite, a primary raw material to produce alumina.  Vedanta. for instance, sources 50 percent of its bauxite requirement from domestic sources. Hindalco primarily sources bauxite from its own mines in Jharkhand, Odisha and Chhattisgarh.

Expansion plans in play

Capacity at Vedanta's Lanjigarh alumina refinery has been boosted to 3.5 million tonnes per annum after the first phase of the capacity addition plan, with another 1.5 MTPA set to come on stream by Q2FY25.  The company noted that work is ongoing to increase the total refinery capacity to 6 MTPA by FY26. In the next two years, it expects the smelting capacity to rise to 2.8 MTPA from the current 2.3 MTPA.

The diversified company is also  expanding  its aluminium capacity at its Bharat Aluminium subsidiary by 600,000 tonnes per annum (ktpa) while optimising its product mix to include 90 percent value-added products. This shift is expected to drive cost reductions, leveraging captive sources of alumina and coal, which in turn is projected to expand margins from $600 per tonne in Q4FY24 to $1,000 per tonne by FY26, according to the company.

"As we complete our full backward integration to ensure 100 percent self-efficiency in bauxite, alumina and coal, we are well positioned to deliver EBITDA (earnings before interest, taxes, depreciation and amortisation) in the region of about $4 billion from our aluminium business at LME (London Metal Exchange) of about $2,600," Vedanta executive vice chairman Navin Agarwal told analysts in a post-earnings call earlier in the month.

Hindalco, which has alumina production of 3.7 million MTPA, has a memorandum of understanding with  Odisha Mining Corporation for long‑term linkage of raw material for its upcoming  2 MTPA alumina refinery project in Kansariguda, Odisha.
"Focus will be on upstream projects now with alumina expansion in Odisha first, followed by a copper smelter (280-300 ktpa) and finally 180-pot aluminium smelter (180 ktpa) expansion in Aditya  Aluminium  with RE-RTC (renewable energy-round the clock) power. Each of these projects will have a capex of Rs 8,000 crore, " Hindalco said in a post earnings call earlier this month.

NALCO, another key player, is progressing with its fifth-stream alumina refinery expansion, expected to add 1 MTPA by the second half of FY26. The company has secured its bauxite supply by executing a lease deed for the Pottangi Bauxite Mines with the Odisha government, ensuring the raw material needs for its alumina refinery expansion. Additionally, NALCO's Utkal coal blocks, with a combined capacity of 4 mtpa, are being developed to optimise costs and secure assured coal supply for its operations.