Following China’s repeated politically-motivated clampdowns on REEs used in magnets, the world’s electric vehicle, clean energy, electronics, and defence ambitions have faced abrupt halts and delays.
Many economies, including India, have been justifiably exploring alternative sources. Nalco’s potential inroads into the industry will deepen strategic alignment with national priorities. To be sure, Nalco stock is already on a winning streak.
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In FY26 so far, the Navratna company has more than doubled investor wealth, massively outperforming both the sector and the broad market index. Will the REE-pivot take Nalco to the next level or break its winning streak?
Riding on runaway aluminium
Nalco’s fortunes are closely linked to aluminium prices on the London Metal Exchange (LME). This has worked in its favour lately. Demand for aluminium has accelerated, thanks to its use in fast-growing sectors, including electric vehicles, solar energy, infrastructure, power, and data-centres. It is also used as a substitute for copper, whose price has skyrocketed. Tariffs have also pushed the pedal on global aluminium prices.
Meanwhile, supply has been constrained. China, which accounts for about 60% of global aluminium production, has been operating close to its regulatory output cap. Smelters in Australia, Mozambique, and Iceland have also faced temporary shutdowns, even as Russian supply faced sanctions. Lower US Fed rates have also reduced the opportunity cost of holding metals, adding fuel to the fire.
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Result? Aluminium price has rallied to multiyear highs in FY26, breaching the $3,000 per tonne milestone earlier this year. This helped Nalco clock quarter after quarter of record performance. H1FY26 marked many milestones, including its highest-ever alumina sales.
About half of Nalco’s alumina production is exported. But thanks to no direct exports to the US, it has thus far not been directly affected by Trump’s tariffs. In fact, a 5% depreciation of the Indian rupee over the past year has widened its export margins.
The sustained strong numbers in the September 2025 quarter had sent the stock soaring 10% in a single day. Aluminium prices have rallied another 8% in Q3FY26, lifting Nalco’s stock to new lifetime highs.
Diversification is typically welcome
Notwithstanding the recent rally, it is important to note that metal prices are cyclical. As supplies from Indonesia and other regions are gradually released, aluminium is likely to eventually revert to lower levels. Alumina prices have already shown signs of moderation. Whenever aluminium prices follow suit, Nalco’s earnings can be expected to take a turn for the worse. This fiscal year, the management expects to match its FY25 revenues only if aluminium hangs on to the $2,800-2,900 per tonne levels.
We have seen such trends transpire intermittently, over the years. Nalco’s topline growth has swung wildly between -26% and +58%. Its ROE has fluctuated sharply too, even as the broad upward trend speaks to improving operational efficiency. Considering the currently high capacity-utilization at its smelter plant, near-term growth is crucially dependent on LME prices.
That said, the company’s capex plans amounting to ₹30,000 crore towards a new aluminium smelter plant and a coal-based power plant will pave the way for medium to long-term growth. The zero debt on its books offers comfort. But with multiyear plans which extend till 2030-31, execution risks and cost overruns cannot be ruled out.
Volatility is likely to remain heightened unless Nalco diversifies towards other minerals. Considering the smoothening effect typically brought about by successful diversification, this is usually welcomed by investors. However, it is important to note that diversification is value-accretive only if planned in adjacent industries where synergistic benefits apply, and when executed successfully. Let’s discuss if this holds for Nalco’s REE and critical mineral foray.
Promising synergies
Nalco has already tested waters with diversification. It holds lithium blocks in Argentina through its 40% stake in Khanij Bidesh India Ltd (KABIL) – a joint venture with Hindustan Copper and Mineral Exploration and Consultancy. There are plans to expand its stake to 50%, while also acquiring stake in an operational lithium mine in Australia.
Moreover, there is evidence to show that valuable metals have resource and technological adjacencies with bauxite mining and alumina refining. According to US Geological Survey, gallium is primarily sourced from bauxite. Research also points to the presence of other critical minerals and REEs, including scandium, titanium, and vanadium in bauxite as well as in residues from bauxite mining and alumina refinery.
Sure, the concentration of these minerals in the overburden – the residue from bauxite mining – is considered too small for financially feasible extraction. But red mud, the chemically separated residue left behind in the Bayer process that extracts alumina from bauxite, can be considered a viable source.
Logistics and other project overheads can also be shared between bauxite and critical minerals extraction processes, thus saving on costs. Effectively, this means that, in addition to fresh mining exploration, which would be expensive, Nalco has the option to look in its backyard for critical minerals and REEs.
Execution can be an uphill battle
Exploration and commercialization of fresh mineral blocks is expensive and time-consuming. Take the KABIL lithium blocks, for example. Invasive drilling exploration is expected to take about half a year, which will be followed by pilot plant setup and grade validation.
According to the management, it will take until the middle or end of 2027 to ascertain the feasibility and scale of commercial mining at the blocks. The problem is even more pronounced for domestic minerals, where exploration is seriously lacking.
As for using bauxite residues, gallium extraction has been commercialized. But the process of extraction of other minerals is still in early stages. Sure, academic research and industrial pilots promise potential. But it is still too soon to vouch for commercial viability. Profitability is also expected to hinge on deposit-chemistry and other project-specifics.
Even if resources are sorted out, technologically, the extraction of bauxite and REEs is a completely different ballgame. While chromite extraction has deeper parallels with the open-pit extraction used for bauxite extraction, extraction and separation of REEs are more chemical-intensive, specialized, and expensive. A technological partnership with an expert will be critical in taking this to the finish line.
India-based miners are already at a cost disadvantage due to India’s stricter environmental standards. Add to this the fact that China dominates the market with a huge headstart and lead in technology, experience, and cost-competitiveness. So, it won’t be a stretch to call out the likely margin-dilutive nature of Nalco’s foray into critical minerals and REEs.
The nascent nature of the industry can also lead to delays and cost overruns, exacerbated by environmental and regulatory hurdles and extended bidding processes.
Finally, the recent rally has caused Nalco’s price-to-earnings (P/E) ratio to spike from the low of 6x in August to 11x. Priced to perfection, even a small slip-up can send the stock tumbling.
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Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser.
Disclosure: The author does not hold shares of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
