See FY14 output at 3.5 lakh tonne: Nalco

The National Aluminium Company or Nalco expects to produce aluminium to the tune of 3.5 lakh tonne in the current financial year, somewhat exceeding its guidance of 3-3.2 lakh tonnes.

Speaking to CNBC-TV18 Ansuman Das, CMD, Nalco says after signing the FSA with Coal India, it has secured supply of coal till 2018. Despite falling rupee the company has not been able to increase aluminium price as the prices are linked to the London Metal Exchange (LME).

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Nalco had earlier cut its aluminium production by 25 percent a couple of months back due to lack of coal availability. Das confirmed that the company will continue to keep its production at the current levels and have no plans for any further production cut.  Below is the verbatim transcript of Ansuman Das’ interview on CNBC-TV18.  Q: Could you talk about the production cut that you have undertaken of 25 percent? Are there any further production cuts that the management will have to undertake because of the lack of coal availability?
A: The production cut which was done a couple of months back was primarily because of curtailment of coal supply by the Mahanadi Coalfields due to some accident. However, at present we will continue to keep our production at the current levels and we have no plans for any further production cut. Q: How is the supply of coal especially from Coal India? How much of your requirements are being met?
A: The supply from Coal India has improved. In last quarter we used about 90 percent of coal which was supplied by Coal India through linkage. Incidentally, we have also finalised our fuel supply agreement for the next five years and so to that extent, Nalco got its coal supply secured till 2018.
Coal India has agreed to give 4.8 million tonnes of coal to the captive power plant at Angul and close to about 0.9 million tonne of coal for our regeneration plant at Damanjodi for production of alumina and both these arrangements will continue till 2018. Q: You had earlier guided for an aluminium output of around 300,000 tonnes to 320,000 tonnes for FY14. Does that still stay?
A: That will stay. We will close down at a level of 350,000 tonnes or so.

_PAGEBREAK_ Q: What is the price situation looking like? You had some advantages because of the rupee depreciation, could you push up prices or will you push up prices?
A: Nalco has been bearing its prices depending on the prices in the London Metal Exchange (LME) and keeping the imported landed cost at the parity. As far as Nalco’s pricing is concerned, this system will continue to prevail and prices have been increased and decreased based on the imported parity prices.
With regards to LME prices, which is hovering in the range of about USD 1,750 to USD 1,800 and with a very short-term perspective, I do not see the prices moving beyond this but definitely there is some kind of resistance at USD 1,750 level.
Maybe in the end of the current fiscal we may have the prices moving in the range of USD 1,850 or so but we have to see how the Chinese economy improves, how Chinese manufacturing activities continue and whether the US economy would continue with the good figures.

Q: Will we see earnings before interest & tax (EBIT) loss in this quarter as well?
A: No. In Q1 our profit after tax (PAT) was as planned. We have targeted a PAT of Rs 159 crore and got a PAT of about Rs 160 crore. In the current quarter also our alumina sales are continuing to be good, prices are also quite good. So, I do not see any loss in this quarter rather we may continue with the profit level of Q1. Q: What about your Utkal coal block, can you give us an update on that? You have received stage one forest clearance but when will that impact be seen?
A: For Utkal coal block we are targeting that we should start commencement of production of raising coal by December 2014. We are following with the state government and presently municipal elections are on in the state so soon after the municipal elections are over we will be able to take it forward.
The land acquisition activities are going on and the state government will help us and will be able to start making this coal block operational by December 2014. Q: You lost EBIT margins in the last quarter, in the first quarter because of the lack of availability of coal, what will be your EBIT margins for aluminium in the current quarter?
A: EBIT margins of aluminium in the current quarter will continue to be in the same level as the last quarter or marginally better than this. Q: If you include the loss of Utkal-E coal block, how would your margins look like?
A: If Utkal-E was available then margins would have been much better because the cost of coal to the company between the last quarter of 2013 fiscal and the first quarter of 2014, there has been a substantial rise, from a level of Rs 1,200 it has gone to Rs 1,600, which is about 25 percent rise in the cost of coal to the company.
I am talking about the cost of coal to the company and 90 percent of linkage coal and plus the 10 percent of the purchase coal whether it is through the e-auction sources or through the imported sources.
Once Utkal-E becomes operational, we expect the coal price of Utkal-E to be about 20-25 percent less than what we are paying to Coal India. So, to that extent that’s an improvement in the EBITDA margin. Q: When will that happen?
A: At the end of December 2014.