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Bauxite Average Sale Price (ASP) needs correction for Indian Aluminium to be competitive

Posted On: 2021-02-25 09:19:18 (Time Zone: Arizona, USA)

As India works tirelessly towards becoming a global manufacturing hub under Hon'ble Prime Minister Narendra Modi's vision of AatmaNirbhar Bharat, Aluminum is set to play a pivotal role in realizing this dream. The world today is currently being constructed on the building blocks of Aluminium with this strategic metal finding its application in multiple core sectors like aerospace, space exploration, national defence, building and construction, transportation, automotive, electrical distribution, packaging and others.

India's existing wealth of natural reserves of Bauxite (the ore from which Aluminium is produced) and industrial infrastructure to manufacture Aluminium and its products has positioned the country well to become a crucial source of the metal for the world. As a manufacturer of the base metal, this will place India on the global map as a one-stop destination for sourcing the metal, which will go a long way in helping India realize its dream of becoming a $5 trillion economy.

Commenting on the unexplored potential of India's bauxite reserves, Dr. Tapan Kumar Chand, Ex-CMD, NALCO & Author of the Book - "Aluminium: The Strategic Metal" said, "Bringing enough bauxite blocks of the estimated deposits of 3.8 billion tons of bauxite in India into auction and increasing the capacity of existing mines by at least 50% will be key to moving India towards becoming AatmaNirbhar. This will also improve the global competitiveness of the Indian aluminium industry. Another important change that is required is in the methodology of the calculation of the Average Sale Price (ASP) of Bauxite which if continued in its current form, will have a negative impact on the overall growth of the domestic Aluminium industry. The price determined from the current ASP system is artificially increased up to 300% to 400% by including expenditures incurred beyond the mining lease."

India is yet to leverage its significant bauxite deposits effectively for its economic and social advancement. With aluminium demand slated to double in the next five years, India can effectively fill the demand gap by utilizing its large reserves of bauxite and coal, 5th in the world, for aluminium production.

It is to be noted that in the last 5 years, since the inception of MMDR Act 2015, no Metallurgical Grade Bauxite Mine has been successfully auctioned. This is largely linked to the unviable and arbitrary determination of Average Sale Price (ASP) of Metallurgical Grade of Bauxite linked with the selling price of the end product Aluminium. This present pricing structure is responsible for the most part, for various state governments not being able to auction the bauxite mine leases. The present pricing structure links the selling price of the end-product (aluminium) to determine the ASP of metallurgical grade bauxite and ends up including costs such as transportation, quality control, rehandling cost etc., which should not be done. This will render Aluminium production unviable in the country. A repercussion of this is being seen in the pause of an additional investment of over Rs. 50,000 crores in the Aluminium sector.

Bauxite mines not being successfully auctioned has led to a surge in the import of bauxite, one of India's most abundant ores, to feed the rapidly increasing domestic consumption and has caused a loss of USD $400 million to the Indian exchequer over the past five years. In addition, it has resulted in a missed opportunity of generating mass scale employment. Bauxite mining creates livelihood opportunities in remote regions that otherwise have limited potential for other economic activities. A single developed mine potentially generates over 10,000 jobs and brings in over Rs. 5,000 crores worth of state revenue. Modern, sustainable mining methods trigger socio-economic development bringing remote regions into the economic mainstream. Hence, utilizing India's natural bauxite dividend needs to be a policy priority.

It's high time India leverages its natural advantage of rich bauxite reserves to achieve our goal of becoming a worldwide manufacturing hub. With our tremendous wealth of natural resources, the time is now for the government to find a solution to enhance bauxite production so that the domestic aluminium industry can thrive to become competitive and realize India's vision of becoming a global manufacturing and aluminium destination.

Source: Equity Bulls

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