Vedanta Mulls Shutting India Alumina Refinery as Prices Collapse

  • Refinery unviable on rising Chinese imports, lack of bauxite
  • Company targets aluminum output of 900,000 tons in 2015-16

Vedanta Ltd., India’s biggest aluminum producer, may close its 1-million metric ton alumina refinery in eastern India as slumping metal prices and surging Chinese imports shrink profit margins.

The company on Tuesday began notifying stakeholders including employees about the economic unviability of the Lanjigarh refinery in Odisha state due to the decline in aluminum prices, onslaught of Chinese imports and absence of bauxite supply security, said Abhijit Pati, chief executive officer of the aluminum business. The company is temporarily shutting its aluminum rolling mill unit in Chhattisgarh, he said.

Vedanta, a unit of billionaire Anil Agarwal’s Vedanta Resources Plc., joins Chicago-based Century Aluminum Co. to warn about possible suspension of production after prices in London slid to the lowest in six years. Prices of the metal used in beverage cans, aircraft and automobiles tumbled 26 percent in the past year and are forecast to extend declines into 2016, according to Harbor Intelligence.

“If this downward spiral of prices continues any longer, we may have to contemplate taking the extreme measure of closing down the operations,” Pati said in an e-mail interview. “We do not expect the prices to rebound during the next 12 to 14 months.”

Sliding Premiums

Along with a decline in LME prices, premiums that buyers pay for supplies from India have fallen to an “almost negligible” amount from about $300 a ton in the past few months, Pati said.

All the metals traded on the London Metal Exchange retreated on Wednesday and Chinese equities extended the steepest five-day drop since 1996 . Policy makers on Tuesday cut interest rates for the fifth time since November to help stem the rout and bolster the slowing economy.

China’s devaluation of the yuan may boost its metals products exports, especially in the short term, according to Eily Ong, an analyst with Bloomberg Intelligence. Metals prices may be depressed further, especially in oversupplied markets, she said on Aug. 12. Chinese exports will keep rising and production cuts have not materialized in the past, she said.

Aluminum for delivery in three months on the LME traded 1.3 percent lower at $1,536.50 a ton at 4:12 p.m. in Mumbai. The metal plunged to $1,506 on Aug. 24, the lowest since June 2009. Prices will slump further, averaging $1,475 a ton in 2016, according to Austin, Texas-based research company Harbor Intelligence.

Shares of Vedanta Ltd. closed 1 percent lower at 85.55 rupees in Mumbai, extending losses this year to 60 percent. Vedanta Resources traded 0.5 percent lower at 490.80 pence in London on Wednesday.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE