SMEs at risk of huge losses if coal crisis confronting primary aluminium industry not addressed: IIVCC

More than 5,000 small and medium-sized enterprises (SMEs), part of the aluminium value chain, are at the risk of suffering huge losses if the present coal crisis confronting the primary aluminium industry is not urgently addressed, according to the Indian Industrial Value Chain Council (IIVCC).

The development assumes significance in the wake of Coal India, which accounts for more than 80 per cent of domestic coal output, has been prioritising fuel supply temporarily to the power sector in view of the low stock position at thermal power plants.

"...A large section of Indian SMEs whose businesses are intricately linked to the aluminium industry are today staring at a bleak future. An acute shortage of coal for the non-power players, particularly primary aluminium manufacturers, puts these plants at the risk of a sudden closure, which can spell doom for more than 5,000 SMEs dependent on them across the country," Abhay Raj Mishra, National Convenor and Member, IIVCC was quoted as saying in a statement.

The IIVCC is an organisation representing the interests of enterprises involved in the industrial production and consumption supply chain activities across the country.

An acute shortage of fossil fuel coupled with stoppage of coal supplies is not only impacting the primary aluminium industry but also the large manufacturers, SMEs and ancillary industries connected to the industry, with the potential to impact lakhs of people employed in related sectors across the country, the IIVCC said.

The country's booming manufacturing sector also stares at a possible derailment if the present precarious situation is not addressed immediately. Further, a shortage of raw materials and aluminium inputs to key industries will lead to an increase in imports for many industries and loss of export earnings.

There are about 1,000 SMEs which are part of the supply chain and ancillaries of large aluminium producers and elated input manufacturing industries, and about 4,000 SMEs which are involved in downstream aluminium manufacturing and distribution activities.

Any major disruption in the market dynamics for aluminium in India will have an immediate severe financial impact on these smaller players. There is strong economic recovery and a sudden surge in demand across industries in the post pandemic period.

At this juncture, an acute shortage of coal on the back of supply constraints is hitting aluminium manufacturing hard and the industry is struggling to sustain operations with alarmingly depleted coal stocks of only 1.5-3 days as compared to the prescribed level of 15 days.

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The industry has no alternative means to meet its intense power needs and sustain plant operations. Aluminium manufacturing is a highly power intensive and a continuous process-based industry which is not designed for ad-hoc shutdowns. The industry is dependent on in-house captive power plants built at huge investments to keep the operations running.

These captive power plants need steady supply of coal to supply power and sustain aluminium manufacturing. A power outage of even two hours or more for aluminium plants would translate into a catastrophic event and a complete closure of plants. Once shut, it takes a minimum of 12 months for operations to be fully restored, which is akin to a 12-month long lockdown for the industry. If coal supply is not restored immediately, an irrevocable collateral damage at these manufacturing assets would be the outcome.

Aluminium is a sector of strategic importance and an essential commodity for diversified sectors crucial to the national economy.

The primary aluminium industry provides vital raw material to entire downstream industry comprising of ancillary industries associated with components of aluminium and steel along with other engineering products and caters to sectors such as automobile manufacturing, aerospace and defense and chemicals.

These ancillaries are producing diverse range of products and serving the needs of domestic as well as global customers. Moreover, these SMEs are playing a crucial role in India by providing large employment opportunities at comparatively lower capital cost as compared to larger industries as well as helping with taking industrialisation to rural and backward areas.

These SMEs are also very crucial for providing the overall thrust for the growth of the local industry and contribute to the socio-economic development of the people of the country. Indian SME sector is the backbone of the national economic structure and has provided the necessary resilience enabling V-shaped recovery of the Indian industry following the global pandemic, despite economic adversities.