Commodity prices have risen sharply in the past year and a half. Global zinc prices have more than doubled. Aluminium prices have shot up, and so have copper prices. Crude oil, which had plunged to $26-27 a barrel in early 2016, has crossed $60 a barrel.
With commodity prices on a roll, Anil Agarwal is raking it in. He is the world's second-biggest producer of zinc, and has significant interests in aluminium, copper and oil (through Cairn). He is ramping up production and all his businesses are throwing up cash like never before.
Call it the commodity cycle or call it luck, Anil Agarwal is ideally poised in the current market conditions. But a few years ago, things were going wrong for him. Global oil prices had started softening in 2014, and then in 2015, went into a free fall. Agarwal, whose cost of production of crude oil from Cairn's fields is roughly $40 a barrel, was squeezed. Meanwhile, despite his company, Vedanta Alumina Ltd, forming a joint venture with Orissa Mining Corporation Ltd to mine bauxite from Niyamgiri hills, Agarwal could not initiate the project. Objections from the villagers on environmental and other grounds put the proposal in cold storage by 2014.
Agarwal tried running his aluminium factory in Lanjigarh in Odisha using imported bauxite but had to shut the factory for some time. The cost of raw material had made aluminium production in Lanjigarh unviable. His image had also taken a bit of knock because of the dispute in Niyamgiri.
Through this period, Agarwal kept investing in increasing production and getting better prices. Zinc prices held up, though, and that kept him profitable, but the big climb was to start later. Zinc prices have doubled since the beginning of 2016 and now hover around $3,000 a tonne. Aluminium prices have also gone up from $1,450 a tonne to over $2,000 a tonne as China has shuttered quite a lot of capacity. The Chinese government also gave a stimulus, which increased the demand for these products, even as supply was getting squeezed. This led to the spectacular rally in zinc, aluminium and copper, which saw Agarwal smiling all the way to the bank.
What now for Agarwal? He is not content to just ride the boom but has doubled efforts to increase production in all his businesses while bringing costs down. He wants to be a top player in commodities, right up there with BHP Billiton and Rio Tinto. He is also on the prowl for distressed companies he can pick up in commodities.