Aluminium Companies May be Hit by Supply of Coal Shortage

When the coal crisis came to the fore, threatening a virtual blackout in many states, it looked like the power sector was the worst affect. However, now the downstream impact is being felt. One such instance is of aluminium companies, which is an extremely power intensive and coal-intensive operation. That has pushed the sector into a major crisis.

The shortage of coal for aluminium producers has become acute in the last few days after the government ordered coal supplies to be urgently diverted to the power plants to help them replenish their inventory. Most power plants were down to 1-2 days of inventory. That diversion meant that a key consumer of coal like aluminium got hurt the most.

This has put aluminium producers like Hindalco and Nalco in a fix. Indian aluminium plants generally rely on captive power plants since their business is very power intensive. However, this needs a steady supply of coal. Currently, domestic coal supplies are stretched and global coal supplies from Indonesia and Australia are almost unaffordable after the 4X price rally.

India’s aluminium industry has repeatedly complained to the government about the lack of coal supply to their captive power plants. Aluminium manufacturers have demanded secure linkages for sustainable operations. The Federation of Indian Mineral Industries has warned the Coal ministry that the coal shortage could lead to factory closures in aluminium industry.

The problem is aggravated for the aluminium industry due to the skewed cost structure of the sector. For example, currently, coal accounts for almost 40% of the production cost of 1 tonne of aluminium. Since the power intensity of aluminium is too high, the focus of captive power has helped to reduce the dependency on the grid. Therein lies the real problem.

Currently, around 9,000 MW of captive power plants have been established to meet their critical power supply needs for the aluminium industry. However, without coal these captive power plants cannot be operated, and most of the captive plants of aluminium companies are running very low on coal stocks. The fear is that if the coal situation does not improve in the next few days, aluminium output cuts could be the only option.

Also Read - Indian Power Companies Face Worst Ever Coal Shortage