Malco shuts smelter as prices fall below production cost

MUMBAI: Madras Aluminium Company Ltd (Malco), the company belonging to Anil Agarwal’s London-listed Vedanta Resources Plc, has temporarily shut down its 40,000 tonne aluminium production line.

The company cited continuous fall in aluminium prices as the reason for its decision.
An industry analyst, who did not wish to be named saying he is not authorised to speak, said Malco’s decision is indeed alarming.

“Remember, India is the lowest-cost producer of the white metal and if plants begin to shut down here, then surely the situation is turning grave,” he said.
Malco produces a tonne of aluminium for $1,600, while LME prices for the metal have fallen 54% from their July 2008 highs to $1,512 on December 9.

Data from the ministry of mines show Malco produced 3,041 tonnes of the metal in September against a projected output of 3,237 tonnes.

But analysts said the company will earn some revenue during the shutdown period by selling power to Tamil Nadu, the state where its smelter is located.

“In Tamil Nadu, the peak price of power is Rs 9 per unit. Therefore, rather than selling aluminium at a loss, the company will sell power and make some profit.”

Aluminium production is very energy-intensive. To produce one tonne of aluminium, about 15,000 units of power is required. Malco has a captive 75 mw generating unit in Tamil Nadu and the company said it will sell surplus power generated from its captive plant to third parties in the state.

On November 20, Malco  had said it has cut aluminium production by 60% due to the falling LME prices and higher input costs. However, its 80,000 tonne alumina refinery will continue to function, it said.