Bharat Aluminium Company, a 51 per cent subsidiary of Sterlite Industries, is planning to close its plant-1, which produces 100,000 tonnes of aluminium every year, as the dip in prices makes production unprofitable.
Billionaire Anil Agarwal-promoted Sterlite Industries acquired a majority stake in the government-owned Balco in 2001 for Rs 552 crore (Rs 5.52 billion). The company added 250,000 tonnes per annum of additional smelting capacity to produce aluminium after the acquisition.
"That plant has a high cost of production and it is not feasible to operate it when aluminium prices have dropped significantly," said a company executive. It has started reducing output and full closure is expected soon.
Aluminium prices fell to $1,251 a tonne on the London Metal Exchange from last July's all-time high of $3,271, as the global credit crunch and economic slowdown curbed demand for the base metal. On Wednesday, the metal's LME price was $1,421 a tonne.
The inventory of aluminium has reached all-time high of 3.76 million tonnes on the LME. An analyst estimates about 35 per cent of aluminium producers worldwide are making losses, many announcing closures.
"We plan to sell surplus power after the closure to make profit," said the executive; there is a 270 Mw dedicated power plant.
Sterlite Industries is, however, expanding its aluminium production capacity through another subsidiary called Vedanta Aluminium. The company plans to ramp up the first phase of its aluminium smelter in Jharsuguda, Orissa, to 250,000 tonnes by June. In the second phase, another plant with the same capacity will be completed by the end of the current financial year.
These plants have low cost of production and the company hopes to sustain the new production despite low prices for the metal.