Sterlite Industries (India) Limited - Sterlite Industries India Ltd.

Principal Raw Materials
The principal inputs of BALCO’s operations are bauxite, alumina, power, carbon, caustic soda and certain other raw materials. BALCO has
in the past been able to secure an adequate supply of the principal inputs for its business.
Bauxite
Bauxite is the primary raw material used in the production of alumina. BALCO sources the bauxite required for its alumina refinery from its
own mines.
Alumina
Alumina is the primary raw material used in the production of aluminum. BALCO currently sources in excess of 72% of its alumina
required for its smelters from third party suppliers on both the Indian and international markets, including from Vedanta Aluminium, with the
remainder provided by its alumina refinery. The alumina sourced externally is metallurgical grade calcined alumina with a minimum alumina
content of 98.6% on a dry basis. In fiscal 2007, 2008 and 2009, BALCO purchased 384,150 tons, 309,460 tons and 112,017 tons of alumina at
an average price of $378, $398 and $365 per ton, respectively, on a Cost, Insurance and Freight (CIF) basis at the port of Vizag, India.
Power
Smelting primary aluminum requires a substantial, continuous supply of electricity. A reliable and inexpensive supply of electricity,
therefore, significantly affects the viability and profitability of aluminum smelting operations. As a result, power is a key input at BALCO’s
Korba facility, where it is provided by two coal-based captive power plants of 270 MW and 540 MW, respectively. Our captive power plants
have historically been dependant upon coal allocations from Coal India. In November 2007, BALCO received a coal block allocation of
211.0 million tons for use in its captive power plants. Power for BALCO’s mines is provided by on-site diesel generators. However, if such
allocation is not available, BALCO will continue to source coal from third parties.
Water
Water is also an important input for BALCO’s captive power plants. BALCO sources its water requirements at Korba from a nearby canal,
with the water transported by pipelines. BALCO is currently in a dispute with NTPC regarding the right of way for its water pipeline that
supplies water to its 270 MW captive power plant, which has been built through NTPC premises. Arbitration proceedings commenced on
May 18, 2009 and are ongoing. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Business — Our operations are
subject to operating risks that could result in decreased production, increased cost of production and increased cost of or disruptions in
transportation, which could adversely affect our revenue, results of operations and financial condition.”
Carbon
Carbon is an important raw material to the aluminum smelting process. Carbon is used in the process of electrolysis, in the form of cathodes
and anodes, with the latter the biggest component of BALCO’s carbon costs. Anodes are made up of carbonaceous material of high purity. For
pre-baked anodes, green carbon paste made of calcined petroleum coke and coal tar pitch is compacted or pressed into the required form. These
anodes are baked before their use in electrolytic cells, or pots.
BALCO has in-house facilities to manufacture carbon anodes to meet its entire carbon anode requirements. Calcined petroleum coke, coal
tar pitch and fuel oil, which are the key ingredients for the manufacture of carbon anodes, are sourced primarily from the Indian market. There
is an adequate supply of these raw materials in India, though their prices are generally determined by movements in global prices.
Caustic Soda
Caustic soda is a key raw material used to dissolve the bauxite in the alumina refining process. The caustic soda requirement varies
significantly depending on the silica content of the bauxite and the technology employed. BALCO sources its caustic soda requirements from
various domestic manufacturers.
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