Spare a thought for Hindalco

Hindalco, one of the big 3 in India’s aluminium industry, finds itself in a difficult position thanks to a recent government ruling.

Hindalco has a joint venture with Essar Power limited to mine coal at the Mahan coal block.  Hindalco built its smelter and Essar its power station several years prior and had been mining coal via a joint venture company called Mahan Mining.

Earlier this year, the Indian government withdrew the rights to all coal mining which had not gained the appropriate licences. This moved forced Hindalco to seek coal supplies from elsewhere, all the while hoping that once the bans were lifted they would regain access to the mine.

But the Indian Government has ruled that the coal blocks must be auctioned off. That puts pressure on Hindalco (and the other aluminium companies) to compete with cement companies and other consumers of coal, and will surely force the price up.

Now last week, the Indian Government has further declared that only energy companies can bid for the Mahan coal block, leaving Hindalco out of the picture and unable to bid for the coal.

Hindalco currently carries almost US$100 billion in debt, and will now have to either source coal from other more expensive mines, or enter into some form of swap agreement for the Mahan coal. Importing coal is not a great option for Hindalco, as it is not located close to a seaport. Whatever happens, Hindalco is going to feel more pain.

Hindalco is also caught in a police investigation involving the former Prime Minister of India, and relating to the issue of permits for other coal mines operated by Hindalco. The police initially filed a closure report, declaring there was no case, but the court rejected the police findings, and ordered them to re-examine the files and documents and submit a new report by the end of January 2015.

AZ China’s India Report for December, published today, carries all the details of Hindalco’s dilemma.   If you are a subscriber, you should have received a MailChimp email already.   If you aren’t a subscriber, contact us for pricing and/or a sample.

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