The dilemmas over bauxite duties
Export curbs on bauxite are hurting miners, but helping alumina producers which are stepping up capacity expansion
India is richly endowed with bauxite. At an estimated 3.48 billion tonnes, the country has 11 per cent ownership of the world bauxite resources. Bauxite is found in two varieties. The highly sought-after metallurgical grade is refined into alumina for smelting into white metal. The non-metallurgical grade finds application in refractories, abrasives and cement. The local market for the latter grade being small, it is imperative that Indian mines find easy access to the world market without being hindered by export duty.
But like iron ore, non-metallurgical grade bauxite is embroiled in an unending controversy as to whether India should strike a liberal stance on its exports or preserve it, irrespective of the size of the bounty for future local use. Whenever the government imposes a high export duty on grounds of resource conservation, overseas despatches fall steeply because they become globally price uncompetitive.
This happened with disastrous consequences for iron ore when in December 2011 export duty was hiked to 30 per cent. Iron ore exports declined from an all-time high of 117.37 million tonnes (mt) in 2009-10 to 4.50 mt in 2015-16. After the high duty led to major disruptions in mining, New Delhi removed duty on ore with up to 58 per cent iron content. But the continuation of 30 per cent duty on better grades ore, for which there is demand in China, is restricting imports from India.
“What is seen with iron ore is much in evidence with bauxite exports of non-metallurgical grade with low 38 to 40 per cent alumina content and the presence of high degrees of silica of up to 6 per cent. Overseas sales took a big hit in the last couple of years as a 15 per cent export duty made it uncompetitive in the world market,” says RK Sharma, director general of Federation of Indian Mineral Industries.
No wonder, then, bauxite exports slid from 8.91 mt in 2015-16 to 2.5 mt in 2016-17. The current year is seeing a further contraction in exports, throwing the mines in coastal zones of Gujarat and Maharashtra in a quandary. Drying up of export sales has shrunk bauxite mining operation in the two states leading to job losses.
“Considering that our exports are of a grade for which domestic demand is to remain limited, we were hopeful of the duty being dropped in the 2018-19 Budget. To our disappointment that didn’t happen. But we will continue to pursue the duty waiver issue with the government,” says Sharma. He worries about India being seen as a
practitioner of resource nationalism.
However, there can be no two opinions as to the need to conserve metallurgical grade bauxite for value addition to alumina. High quality bauxite found in abundance in Odisha has encouraged the aluminium industry to grow alumina refinery capacity in a big way. Two of the three aluminium producers in the state get all the mineral they need from their large captive deposits for making alumina. The continuing success of the government owned National Aluminium Company (Nalco) is underpinned by its abundant ownership of bauxite deposits at Panchpatmali hills in Odisha.
The company is digging out high quality bauxite at Panchpatmali for about three decades, where in 1982 September it was allotted 314 mt for captive use. After taking out bauxite over all these years, the deposits are now down to about 200 mt. But these will still be found good for Nalco’s 2.275 mt Damonjodi refinery to operate at optimal capacity for about 30 years. To make one unit of alumina three units of bauxite are required.
The extraordinarily good prices for alumina in the world market is leading Nalco to add a 1 mt capacity fifth stream at its Damonjodi refinery for which all the clearances are in place to allow start of construction in a couple of months. World alumina prices have remained attractive for refiners, thanks principally to China stepping up aluminium production in 2017 to 32.27 mt, up 1.6 per cent from 2016 in spite of the country putting curbs on ageing and polluting capacity. Because of its own poor bauxite quality, China has remained the world’s largest importer of both the mineral and alumina.
As Nalco will be spending ~55.4 billion to expand Damonjodi refinery, it will also build a new single potline of 600,000 tonne at Angul where stands a 460,000-tonne smelter. Bauxite for the fifth stream in the refinery will come from Pottangi, where a 75 mt deposit is reserved for the company. Alumina to be had from the new stream will be earmarked for use by new capacity to be added to the smelter. The twin expansion has been planned in a way that Nalco will continue to have large surplus of alumina for exports.
“The moolah is in alumina exports. According to research and consultancy group Wood Mackenzie, we remain the world’s lowest cost producer of the chemical. Our high quality bauxite, bare minimum cost of transferring it from Panchpatmali hills to the refinery at the foothills through a 14.6 km conveyor belt and efficient refinery operation have made us the most efficient alumina producer globally. We will keep annual exports of alumina in excess of one mt,” says Nalco Chairman Tapan Kumar Chand.
Such is the lure of alumina exports, that Hindalco Chairman Kumar Mangalam Birla said in September that exporting the extra alumina that its wholly-owned subsidiary Utkal Alumina would make would be an “attractive proposition.” The 1.5 mt Utkal Alumina is left with some surplus after meeting full requirements of an Odisha based Hindalco smelter of 360,000 tonnes. But that surplus is not enough to give Hindalco a meaningful profile as an alumina exporter.
With exports in view, Hindalco has decided to double the Utkal capacity in two phases. Debottlenecking will first take capacity to two mt and then a new one mt stream will make Utkal a three-mt refinery. Like Nalco, Utkal has the advantage of drawing bauxite from captive deposits of over 204 mt. But with Vedanta Aluminium still without captive bauxite mines, it remains a daily challenge to procure the mineral from both within and outside the country. No wonder, then, its cost of production of alumina is substantially higher than its two peers.