DSIJ Mindshare

Vedanta to shut one of its Alumina refinery

Vedanta is going to shut its alumina refinery at Lanjigarh in Odisha mainly due to shortage of raw material and absence of bauxite linkage within state. The company is shutting down its one million tonne a year alumina refinery to tackle existing turmoil in global aluminium prices. The share price of the company on BSE declined by 4.34 per cent on early trades and trading at Rs 84.9 on intraday basis.

Aluminium prices dropped by 15.90 per cent to USD 1640 per metric tonne as of July 2015 during 12 months period. The prices fell to a five year low. The slowing Chinese economy has also piled pressure on aluminum prices. The latest Chinese customs data show the country’s export of semi-finished aluminium products, surged 35 per cent on yearly basis in the first half of current fiscal year. Chinese aluminum producers have been stepping up their overseas sales this year, adding to global excess supply of the metal used in auto making and packaging.

Vedanta is into trouble as it planned to source bauxite through a joint venture with state-owned Orissa Mining Corporation. There was forceful opposition by Dongariah and Jharnia Kondhs, people from the 'primitive' tribes living on bauxite rich Niyamgiri mountain. The company's obtained bauxite accounted 35 per cent of alumina production cost.

The alumina refinery closure would affect Vedanta's smelter operations at Jharsuguda. There will be impact on nearly 10000 people directly and the region at large due to Vedanta's refinery closure. Earlier, the company closed its refinery for seven months in FY13.

Alumina production cost from the Lanjigarh refinery stood at USD 340 to 350 a tonne compared to the average global market price of USD 290 to 300 a tonne. Due to a price differential of USD 50 a tonne, Vedanta could not able to run the refinery by incurring a loss of Rs 3 crore every day. Hence, Vedanta forced to initiate the process of gradual closure of alumina refinery.

Vedanta's aluminum segment contributes 17.35 per cent of total revenue amounting to Rs 12726 crore as of FY15. The company's aluminum business comprises around 12.1 per cent of operating profit amounting to Rs 1825 crore in FY15. It invested Rs 4500 crore on Lanjigarh refinery. The closure of the refinery would impact company's aluminium segment business.While the group's combined investment stood at Rs 50000 crore on various projects such as smelter plant, aluminium special economic zone and 2400 MW thermal power project in Odisha.

Vedanta is a globally diversified natural resources company with operations across zinc, lead, silver, oil and gas, iron ore, copper, aluminum and commercial power. The company operates Tuticorin smelter and India Copper Mines of Tasmania. It also operates a refinery and two copper rod plants at Silvassa in Western India. Vedanta's Iron Ore business consists of exploration, mining and processing of iron ore, pig iron and metallurgical coke and power generation. Aluminium operations of the company include a refinery, a smelter and power plants at Lanjigarh and Jharsuguda.

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