Aside from combating imports, Vedanta's proposal to expand the downstream, value-added portfolio is expected to boost its realisations.
"On the marketing side, we continue to focus on improving net premiums by progressively increasing value-added production. The value-added production is expected to grow by 25 per cent in the second half from 432,000 tonnes which we saw in the first half, driven by improved sale of wire rods in the domestic market, as well as higher billet sales internationally," Srinivasan Venkatakrishnan, chief executive officer, Vedanta Ltd said at the results conference call.
Flagging concerns on imports, he said, "Specifically, scrap imports from United States have significantly increased by an astonishing 128 per cent in the first quarter of this year, and a further 144 per cent in our second quarter, over the same period last year. This is one of the areas we are taking some policy intervention and support from the government. We are certainly committed on improving the overall profitability in the aluminium business and unlocking its true potential."
Like other primary producers, Vedanta is struggling to contain its aluminium smelting cost due to input commodity inflation. Despite Vedanta's focus on structural cost reduction, its cost of production (CoP) for aluminium was on the higher side at $2000 per tonne because of market forces driven by higher coal costs. Vedanta eventually looks to prune its aluminium CoP to $1500 per tonne. To achieve the competitive costs in aluminium CoP, Vedanta has secured 3.2 million tonnes of additional linkages from Tranche IV coal auctions. Coal mining has also commenced at the captive Chotia mine which feeds the Group owned BALCO smelter at Korba (Chhattisgarh).
To optimise its alumina making costs, Vedanta has inked a long-term linkage agreement with Odisha Mining Corporation (OMC). Under the arrangement, 70 per cent of bauxite mined by OMC from its Kodingamali mine will be fed to Vedanta’s Lanjigarh alumina refinery installed at the foothills of bauxite laden Niyamgiri hills. With the OMC mine ramping up well, Vedanta expects 250,000 tonnes of bauxite each month in Q3 to help meet the Lanjigarh refinery requirement. The refinery’s present capacity is one million tonnes per annum (mtpa) but Vedanta has firmed up plans to scale it up to six mtpa in a staggered expansion. The first phase ramp-up will see the refinery scaling four mtpa capacity expected by December 2020.