Nalco reverses its export strategy

KOLKATA:  Reacting to the crash in international alumina prices, National Aluminium Company Ltd (Nalco), the country's largest producer-exporter of alumina, is reversing its recent marketing strategy of offering higher volumes on the spot market than tying up exports through long-term fixed price contracts.

Normally, Nalco's export strategy had been to tie up 70% of its alumina in long-term overseas contracts and offer 30% of its 16 lakh tonne production in international spot markets.

However, since last year, the government has allowed the public sector integrated aluminium producer to sell higher quantities on a spot basis to bolster realisations at a time when prices hit a record $660 per tonne.

But now, with global prices of alumina crashing to around $240-250 per tonne, Nalco is getting back to preferring long-term contracts concluded at higher levels to tide over weakening alumina market.

For example, in the April-June period, the company exported about 1.79 lakh tonnes of alumina, the bulk of which were on a spot basis, to take advantage of the high average price of around $600 per tonne. Now, this is being reversed with more volumes being offered on long-term fixed price contracts.

The decline in prices is largely on account of global overproduction, with China alone producing 8.3 million tonnes of alumina, up 51% from the previous year.

Nalco is an alumina surplus producer, which needs to export at least 50% of its production, while the balance is sufficient to feed its capacity of smelting to produce metal. In 2005-06, the company exported 8.65 lakh tonnes of alumina and had set an export target of 8.63 lakh tonnes for the current year.

But, with prices crashing and analysts forecasting prices to move down to $200 by 2007, Nalco will now have to rely more on long-term contracts to sell its exportable surplus. In May 2006, alumina hit a historical high of $660 per tonne, compared to the historical low of $150 per tonne in 2002.

Company officials said the average price of Nalco's already concluded long-term contracts was around $480 per tonne. By tying up larger quantities in long-term contracts even at the current price of $250 per tonne, the Nalco strategy would be to protect itself from further slump in prices, as predicted.

Possibly anticipating that the company may have to tie up the entire export target for the year in long-term contracts, Nalco chairman and managing director in-charge, C R Pradhan, has already hinted at slashing alumina production during the next six months.