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Availability Of Coal Is The Biggest Worry, Says Hindalco

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Hindalco Industries Ltd. said availability of coal is the biggest risk for the company as demand for power rises.

The aluminium maker had to buy coal—used in smelting—through spot auctions in the recently concluded September quarter, according to Managing Director Satish Pai. “So, our coal prices were up 12 percent quarter-on-quarter.” “Generally, after monsoon things get a little better but the demand for power is very strong, and we are worried that power plants will be favoured and given preference,” Pai told BloombergQuint.

Coal-fired plants meet nearly three-quarters of India’s power demand. Hindalco is worried that the cost of fuel may go up further as the company had to import this time to secure coal for the ongoing third quarter. That’s also when other input costs like furnace oil rose in line with crude prices. But a recent decline in crude prices, Pai said, is likely to lower furnace oil costs.

“When we look at Q3 it will be flat (coal cost) as we have secured most of the coal. We will not get coal more than what we have been committed. So, it’s going to be tight,” Pai said. “As a precautionary measure, we have also imported coal.”

The company has four captive coal mines, with three of them operating at 100 percent capacity and the fourth expected to become operational by June 2019. Hindalco requires nearly 16 million tonnes of coal every year. Its captive mines provide for 4 million tonnes of fuel. For the rest, it depends on Coal India Ltd. and spot market auctions.

“We expect to pick up 3-4 million-tonne-per-annum capacity in the upcoming coal auctions in November-December,” Pai said, adding that the government, along with the Ministry of Environment and Forest, needs to streamline the auction process with a single window clearance for all mines.

Land and forest clearances now are undertaken after the auction is completed, which delays the operationalisation of mines.

Also Read: Q2 Results: Hindalco’s Profit Rises 54% On Higher Operational Efficiency

Demand For Aluminium

Domestic demand for aluminium grew at 14 percent in the first half of the ongoing financial year. But much of it has been captured by imports, Pai said.

Aluminium imports from China and Asean countries grew 20 percent during the period. This, along with the U.S.-China trade war, led to the dumping of aluminium and other value-added products in India, he said.

Of the total 1.59 million tonnes of domestic demand for aluminium, nearly 0.93 million tonnes were provided by imports in the first half of the financial year ending March 2019.

Global demand for aluminium is expected to be at 4 percent in calendar year 2018. The growth will be primarily led by demand in the U.S. and India. “China’s demand has moderated, and they have started stimulus to push up demand. So, I am not worried that the demand may fall below 4 percent.”

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