The impact of higher raw material costs and lower aluminum prices resulted in an 80% drop in profit for Nalco. And even though the price of aluminum has improved since the beginning of January it is still significantly lower than the same period last year.

This leaves the country's largest aluminum producer with little choice but to curtail production in the coming months in an environment where input costs remain high.

The sharp drop in LME aluminum prices has made it unviable for several aluminum producers across the globe to operate forcing them to partially shut down smelters. This is because the cost of production mainly the cost of power remains high, hurting margins of all producers including the cheapest producers like Nalco.

With the cost of coal higher by almost 50% and LME aluminum about 11% lower the company's move to take 120 pots off the stream at its smelter in Angul makes sense. Aluminum prices, though 5% higher than last quarter are still about 14% lower than January 2011. Given this scenario, the management is not likely to increase production which means it will report a drop in production for the year.

(Sourced from economictimes.indiatimes.com)