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An unexpected windfall for aluminium

October 15, 2018

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INTERNATIONAL demand for Indian aluminium has gone up significantly in the recent past, and the coming months could bode well for the industry.

Aluminium exports from India soared by 36 per cent in 2017-18, even as the price of the metal shot up by more than 20pc. Besides traditional markets, Indian aluminium producers have also been able to break into the Japanese market in recent weeks.

The imposition of sanctions by the United States on Russia’s United Company Rusal, the second-largest aluminium producer, has triggered demand for the metal from countries like India.

According to the Indian commerce and industry ministry, exports in 2017-18 shot up to 1.66 million tonnes (mt) from 1.22mt in the previous year. The current fiscal will also see a surge in exports of the metal from India.

South Korea and Malaysia are the largest buyers of Indian aluminium, accounting for more than 60pc of its exports. Even the US accounts for more than 10pc of India’s overseas sales of aluminium.

Primary aluminium production in India shot up by 21pc, touching 3.39mt in 2017-18. Consumption added up to just 2.08mt. CARE Ratings, the second-largest rating agency in India, estimates that aluminium production would add up to 3.42mt in the current fiscal.

The imposition of sanctions by the United States on Russia’s United Company Rusal has triggered demand for the metal from countries like India

Aluminium prices have ruled high in 2017-18, averaging $2,045 a tonne. After the United States imposed sanctions on the Russian producer, aluminium prices touched a seven-year high peak in April.

Interestingly, India has finally been able to crack the Japanese market and top aluminium producers are now boosting their sales to Japan. Its imports of aluminium ingots from India doubled in the first eight months of 2018.

For Rusal, Japan was a major market, and the Russian firm accounted for a fifth of its imports in 2017. Importers including Mitsubishi Corp are now furiously expanding their aluminium sourcing, including from India.

But the Indian aluminium industry is also worried over the acute power shortage which could disrupt the production of the metal. Last week, the Aluminium Association of India (AAI) complained to the government that coal supplies for captive power plants are being diverted to the power sector.

The failure to supply coal has crippled power to the aluminium industry in recent weeks. “Any abrupt stoppage of this secured coal supply affects the operations of the industry severely resulting into a grinding halt, thereby impacting the SMEs in downstream sector,” the association informed the government.

Aluminium smelters in the eastern state of Odisha need more than 6,000 megawatts of electricity, more than double the average power load of the state. And the smelters also need uninterrupted power supply, 24-hours a day and 365 days in a year, it pointed out.


ANOTHER major concern for the industry is the rising import of cheap aluminium from many countries. The AAI recently complained to the Prime Minister’s Office about the dumping of cheap imported aluminium.

Besides hurting the domestic industry, it had also resulted in an outgo of $4.5 billion in foreign exchange. The AAI claims that imports peaked at 1.96mt in the current fiscal, resulting in a huge outflow of foreign exchange.

The aluminium producers admit that some imports are essential, especially for the automobile sector. But traders are dumping primary and scrap aluminium in the country now, they claim.

Import of primary aluminium attracts a duty of 7.5pc, but import of scrap attracts a mere 2.5pc tariff.

Aluminium scrap is a key raw material for secondary aluminium processors and the automobile industry. With low aluminium usage in the country — a mere three per cent, as against a global average of 25pc — India is able to meet less than a fifth of its scrap demand.

In fact, the Metal Recycling Association of India has demanded the government scrap the 2.5pc import duty. The association represents the interest of more than 10,000 small and medium enterprises and its views are taken seriously by the government.

Most of the imports are from the ASEAN countries, with which India has a free-trade agreement, and finished and semi-finished aluminium attracts nil duty.

The organised aluminium industry in India is dominated by three companies. Anil Agarwal, the UK-based NRI business tycoon, controls Vedanta Aluminium, while the Aditya Birla Group runs Hindalco Industries. The third major player is government-controlled National Aluminium Company.

All three majors are worried that imports of the metal have been growing phenomenally in the current fiscal, adding up to 60pc of the domestic aluminium consumption.

Imports of the metal shot up by nearly 20pc in the previous quarter and aluminium scrap imports went up by nearly 25pc. Imports of aluminium scrap from the US soared by about 130pc.

T.K. Chand, chairman and managing director, Nalco, and president, AAL, says there has been a surge in imports due to international market conditions.

“India needs to protect its domestic market against rising imports,” he asserts. The AAI has sought quantitative restrictions in imports, besides abolition of inverted duty structure on caustic soda. It also wants the government to include aluminium in the core industry sector.

According to the top players, they have been forced to sell the metal at lower prices in India because of growing imports. This has severely hit their profitability and that of the downstream business.

The industry wants the government to increase import duty on aluminium scrap and the primary metal to 10pc from the existing basic duty of five per cent. It also wants the import duty on downstream aluminium value-added products to be raised to 12.5pc from the existing 10pc.

But considering the huge stakes that are involved, the Indian government is unlikely to take any hasty steps, especially with thousands of smaller players opposed to such moves.

Published in Dawn, The Business and Finance Weekly, October 15th, 2018