Crisis looming over aluminium industry due to coal shortage

The recent decisions for stoppage of secured coal supplies and rakes for non-power sector is detrimental for aluminium industry and will jeopardise the sustainability as these continuous process-based plants are not designed for adhoc shutdown and start of operations
Crisis looming over aluminium industry due to coal shortage
Mumbai

The current coal shortage crisis is having its effect not just on the energy sector, but also on non-power sectors (like aluminium) as coal supplies to these sectors are curtailed. “Aluminium smelting requires uninterrupted quality power supply for production which can be met only through in-house CPPs which operate 24/7 and 365 days, and have signed FSA (Fuel Supply Agreement) with Coal India Limited (CIL) and its subsidiaries for assured long term coal supply. The recent decisions for stoppage of secured coal supplies and rakes for non-power sector is detrimental for aluminium industry and will jeopardise the sustainability as these continuous process-based plants are not designed for adhoc shutdown and start of operations. Any power outage/ failure (2 hours or more) results in freezing of molten aluminium in the pots which will lead to shutting down of plant for at least 6 months rendering heavy losses and restart expenses, and once restarted will take almost a year to get desired metal purity," said Aluminium Association of India (AAI) in a letter addressed to the CMD of Coal India Limited.

AAI letter added, "The We appreciate the highly praise worthy measures and policy reforms for coal sector amidst the unprecedented global pandemic situation. Despite untiring efforts of MoC and CIL to support the industry, the current acute coal crunch due to various factors which has created an immensely precarious situation, majorly for the highly power intensive industries like aluminium wherein coal accounts for ~40% of the production cost."

Aluminium is a sector of strategic importance and an essential commodity for diversified sectors crucial for nation’s economy. Huge investment of Rs 1.2 lakh crore ($20 billion) have been made to double the domestic production capacity to 4.1 mtpa to cater country’s increasing aluminium demand. The industry employs one million people & has developed 4000 SMEs in downstream sector. Also, the Central Government has declared aluminium manufacturing to be a public utility service. 

The entire industry has been brought to a standstill and left with no time to devise any mitigation plan to continue sustainable operations. The coal stocks of operational plants have depleted to alarmingly low critical stocks of 2-3 days, from the level as high as 15 days in the month of April 21, and plants are forced to operate at reduced power generation with huge risk of closure with threat of loss of huge employment and deterioration of MSMEs. Moreover, the ongoing global aluminium shortage due to supply demand mismatch is also adding to the woes for industry with the current coal situation in India. 

The coal linkage auctions were envisaged to be held at six months’ interval to meet coal requirement. However, post Tranche IV (Sept, 2018), no linkage auctions have been conducted for CPP sector in last three years. The Exclusive e-Auctions are not being conducted at regular intervals, and insufficient quantity of coal is being offered through Spot e-Auctions by Road mode. As a result, the premiums on the reserve price of coal in recent auctions have skyrocketed and making prices unviable for the NRS coal consumers. 

"Adding to the plight of industry, the exponentially rise in coal prices have created a double whammy as the global coal prices have gone up exponentially and are on an upward trend while the ocean freight rates are also at all-time high. Therefore, even the import sourcing is completely unviable in this emergency situation to meet coal requirement due to deficit of indigenous coal supply, and also not in the spirit of Government’s vision to make a Self-Reliant India and Make in India," said Aluminium Association of India.

In view of the existing scenario to save the domestic industry, AAI has requested CIL's intervention to normalise the precarious situation arisen due to stoppage of coal supplies and rakes by offering supports like: 
  • Immediate resumption of coal supply for aluminium industry CPPs against secured linkages for economically viable and sustainable industry operations. 
  • Rakes allocation on priority for highly power intensive aluminium industry for optimum coal materialization. 
  • Expediting coal linkage auctions/exclusive e-auctions for CPP sub-sector through Rail mode at the earliest to provide some relief for the consumers

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