US aluminium giant Alcoa is globally seen as the bellwether for the silvery white metal industry. Such is its standing that every quarter it unofficially kicks off the US earnings seasons. Not surprising, therefore, Alcoa deciding two years ago to start switching off high-cost smelters to stanch profits fall from the commodity aluminium business has found converts among leading producers in the world, including our National Aluminium Company (Nalco). Although not a moment too soon, China, the world's largest producer and user of the metal, saw merit in Alcoa shaving capacity. Low-capacity high-cost smelters using outdated technology and polluting the environment fell foul of the Xi Jinping administration. Aluminium prices are staying so low that despite production discipline, Alcoa's profits after tax from commodity aluminium fell in the second quarter of 2015 to $67 million from $97 million a year earlier. But profit rises in engineered products and solutions, rolled items and upstream intermediate product alumina more than compensated for aluminium earning contraction.

Many see alumina, extracted from bauxite through a digestive process in a refinery and then fed in a smelter as the 'unsung hero' in the aluminium business chain, as Alcoa chairman Klaus Kleinfeld puts it. But defying low pricing for alumina, the smelter ingredient business of Alcoa raised its after tax operating income to $215 million in the second quarter from $38 million in last year's identical period. Alcoa has total alumina capacity of 17.3 million tonnes (mt) distributed among refineries in Australia, Brazil, Spain, Suriname and the US. With the objective of lowering refining operations on the global alumina cost curve, the company has initiated a review of 2.8 mt capacity for "possible curtailment (partial or full), permanent closure or divestiture". In anticipation that the commodity cycle bottom is not going to go away any time soon, most leading constituents of global aluminium industry are still finding out what more restructuring they should do to keep their heads above water.

As Alcoa has diligently gone about the job of deletion of high-cost smelting capacity, it has at the same time investing heavily in aluminium-based downstream products, principally relating to automobiles and aircraft, using both organic and acquisition routes. Experience of Hindalco-owned Novelis and also of Alcoa says success in the two highly demanding downstream sectors depend on partnering with customers from research and development stage to production to find solution for products.

Nalco does not stand in comparison with Alcoa in capacity terms either on commodity side of business of alumina and aluminium or in value added downstream products. But in respect of profitability of alumina business, Nalco shares space with Alcoa. During 2014-15, of Nalco's output of 1.851 mt of alumina, as much as 1.185 mt were exported after fully meeting its own smelter requirements to make 327,070 tonnes of metal. Nalco is also the only aluminium company in the country that consciously took the decision to shut down pots at its smelter in view of low metal prices and relatively high cost of coal procurement outside linkage system. Marketing savvy is also at work for production discipline. For a year and a half, aluminium demand in India has remained flat. Nalco smelter at Angul in Odisha has a capacity of 460,000 tonnes.

No wonder, as alumina has saved the day for Nalco, the company has decided to instal 1 mt capacity fifth stream at its operating 2.275 mt refinery at an investment of Rs 5,540 crore. Ideally, Pottangi with mineral reserve of about 70 mt earmarked for Nalco should be the source of bauxite for the new stream. Even after a good number of years of Nalco seeking prospecting to be followed by mining rights over the deposits, uncertainty shrouds its allocation. Till such time, the issue is sorted out hopefully in favour of Nalco, the company will be sourcing bauxite from its operational mine at Panchpatmali hills in Koraput district. Deposits left at Panchpatmali that could meet raw material requirements of refinery at its present capacity for two decades will be curtailed to the extent bauxite is to be fed into the proposed new stream. Uncertainty about allocation of Pottangi deposits should end quickly for which spirited intervention of the Odisha government is needed. Since alumina has ring-fenced Nalco through three years of aluminium price pain, it should aggressively pursue building a 1 mt greenfield refinery in Gujarat's Kutch district, based on locally available bauxite. Proper exploitation of the country's large bauxite reserve will allow it to become a significant exporter of alumina.