Vedanta Aluminium doubles investment in value-added AL to benefit from India’s construction and EV boom

Vedanta Aluminium plans to significantly increase the share of value-added aluminium products in its portfolio from the current 55% to over 90%. This is part of the mining company’s broader efforts to tap into India’s rapidly growing construction and electric vehicle markets.

This change will also help increase margins significantly, John Slaven, CEO of Vedanta Aluminium, told Mint.

“We are moving from 55-60% of our mix as value-added products to 85…90…95%. That will take us from $250 per tonne to $350 and above as net effective premium,” Slaven said, as he prepared to launch two value-added aluminium products in the Delhi-National Capital region on Wednesday.

Vedanta Aluminium, now a subsidiary of Anil Agarwal-led Vedanta Ltd, produced 2.37 million tonnes of crude metal in 2023-24, which was roughly more than half of India’s total output. Its value-added products include components used in construction or the automotive sector, such as ingots, plates or bars.

(Vedanta Aluminium will become an independent listed company after a six-way split of the main entity, which Slaven said is expected soon.)

Slaven said that given the expected rise in aluminium prices caused by the rising costs of running capital-intensive smelters, companies would likely demand a premium.

“I think prices will rise in the medium to long term,” he said, adding that Vedanta Aluminium, which produces more than half of India’s aluminium, is well-positioned to benefit from this trend thanks to its focus on high-margin, value-added products.

The price of raw aluminum quoted on the London Metal Exchange, a global price benchmark, has risen about 10% over the past year to about $2,350 a tonne. Because value-added aluminum products go through additional processes, they command a higher price than raw aluminum.

Electric vehicles drive demand for aluminum

India, the world’s third-largest aluminum market, uses about 5 million tons of the metal a year, mostly driven by the construction sector. Demand from the electrical sector is also growing significantly, Slaven said, adding that this has proven to be a “major driver of growth.”

Slaven also noted the growing influence of electric vehicles, especially four-wheelers, on the aluminium industry.

“I think (electric) quadricycles are where we expect to see the most growth. There’s more (aluminum) in a vehicle than in a two-wheeler. And also, as quadricycles become electrified, there’s more aluminum in any electric vehicle than in a combustion engine,” he explained.

Aluminum, a largely recyclable material, is a key component in electric vehicle manufacturing, largely because it is lighter than steel, which translates into greater efficiency and range on a single charge.

India’s moves to promote greater use of electric vehicles are expected to further boost demand for aluminum. The government on Wednesday launched the PM E-Drive program with ₹The outlay of Rs 10,900 crore over two years is aimed at promoting manufacturing and deployment of electric vehicles, especially electric buses, electric trucks and hybrid ambulances.

Green wave

Slaven added that Vedanta Aluminium is focused on expanding its manufacturing capabilities to produce more aluminium products, including eco-friendly aluminium, to meet the growing demand from the global and Indian construction and automotive sectors.

“The automotive industry is very focused on the ecology (of aluminum), as is the packaging industry, consumer electronics, so everything where consumers have to choose what is considered sustainable and what is not,” Slaven explained, emphasizing the growing demand for environmentally friendly aluminum.

To meet the expected increase in demand, Vedanta Aluminium plans to increase its production capacity from 2.37 million tonnes to 3.1 million tonnes by intensifying operations at its Bharat Aluminium Co. (BALCO) plant.

The company is particularly focused on sales in the fast-growing Indian market. Slaven expressed confidence that domestic aluminum consumption will double in the coming years and emphasized the financial benefits of prioritizing local sales over exports.

“Our profitability in domestic sales is much higher than in the export market. We don’t have to pay for sea freight, we don’t have to pay import tariffs, this is before CBAM etc. So domestic sales are much more profitable and we want to support the growth of the Indian market,” Slaven said. “We think this will be a real boost to the overall result because we sell more in the domestic market.”

Both aluminium and steel will be covered by the new European Union Border Adjustment Mechanism (CBAM), which forces Indian metals companies to strike renewable energy deals to reduce net carbon emissions and avoid penalties.

Also Read | EU Carbon Border Tax Poses Major Challenge for Indian Businesses

Currently, green aluminum makes up about 6% of Vedanta Aluminum’s total production. Slaven said the company aims to increase that to 30% by 2030, fueled by 1.37 gigawatts of renewable energy it has already contracted.

In addition, Vedanta Aluminium plans to increase its revenue by increasing aluminium production by 10% at two of its mines in Chhattisgarh and Odisha, he added.

The Division of Vedanta: The Last Major Hurdle

Asked about the timeline for the Vedanta demerger, Slaven said it is expected to be completed in a few months, pending the approval of the company’s application by the National Company Law Tribunal. Vedanta had announced plans to split into six independent companies in September last year.

Also Read | Vedanta Split: Key Lenders Give Green Light After Months of Deliberation

“The NCLT process is ongoing. It will end with a meeting with shareholders and also with lenders to get the approvals of both sets of stakeholders,” Slaven said. “This process usually takes about four months. We filed probably about a month ago, so this was the last kind of major hurdle.”

Talking about the potential impact of the demerger on Vedanta Aluminium’s financial results, the company’s CEO said it will enable the company to adopt a more focused approach with an independent board and also help investors make more targeted investments.

“Because we are now a sector in Vedanta’s portfolio, it allows us to really establish an independent identity, our own strategic direction defined by an independent board of directors, a dedicated management team,” he said. “It also allows investors to determine whether they want to invest in aluminium, oil and gas, energy, base metals. They may have different perspectives on these commodities at different times.”