 "Aluminium imports eat into companies' market share")
Why are Indian aluminium producers upset even when demand for the silvery white metal grew 6.2 per cent to nearly 2.4 million tonnes (mt) during 2014-15?
After all, last year's demand growth of aluminium was far better than steel, which it is trying to replace in a number of areas, particularly in automobiles and construction. Aluminium producers' dismay is over imports seizing a growing share of domestic market.
This is forcing local producers to go slow in stepping up production at newly-commissioned smelters. Vedanta is in the process of increasing capacity of the new 325,000-tonne BALCO II smelter in Madhya Pradesh and the first unit of 1.25-mt second smelter at Jharsuguda in Odisha where a 500,000-tonne smelter is running to capacity.
Similarly, Hindalco is engaged in activating pots at its two greenfield smelters Mahan and Aditya Aluminium with a capacity of 360,000 tonnes each. The largely government-owned National Aluminium Company (NALCO), which a couple of years ago effected metal production cuts to ring-fence its bottom line, will not find it easy to lift production any time now because of rising imports and disturbingly low the London Metal Exchange prices.
NALCO has, however, committed to the government to lift production to 380,000 tonnes in 2015-16 from 327,000 tonnes last year.
An Aluminium Association of India (AAI) paper says even while the country's consumption of the metal grew at a compounded annual growth rate (CAGR) of six per cent since 2010-11, domestic producers' share of local market in the past five years was down to 45 per cent from 60 per cent. Vedanta Aluminium CEO Abhijit Pati says: "Low import duty regime of five per cent on primary aluminium and 2.5 per cent on scrap is playing havoc with local metal producers, which are left to nurse considerable idle capacity." In recent years, the Indian aluminium sector had invested as much as Rs 1.2 lakh crore, doubling smelting capacity to 4.2 mt, says Pati.
This was done in 'rational expectation' that aluminium use here will rise to 3.5 mt - if not more - by 2018 as the economic reforms gather momentum, and major infrastructure projects that have stayed in the backburner for long, get launched.
Aluminium makers are placing high hopes on the electrical sector having a predominant share of 38 per cent share of total metal use and requiring high conductivity material for its expanding transmission system.
But to avoid electricity losses during transmission, conductor lines are better be made from primary aluminium instead of imported scrap, where impurities in the absence of failsafe inspection are prone to occur.
Whatever the cost to aluminium industry, converters in the downstream can be trusted to take advantage of low import tax to bring here large volumes of scrap and waste material. This is exactly what is happening.
In total aluminium imports of 1.563 mt in 2014-15, the share of scrap and waste was 860,000 tonnes. More worryingly for the industry, any amount of aluminium products might be getting imported under scrap heading.
Differential duty rates provide incentive to unscrupulous traders to bring aluminium products as scrap. In the process, the government suffers revenue loss. AAI, therefore, wants uniform import duty on primary aluminium and scrap as is the case with other non-ferrous metals. At the same time, to reign in imports, duty needs to be pegged at minimum 10 per cent.
Russia, home to the world's biggest aluminium producer Rusal, charges 10 per cent import duty. In Brazil, the duty is 20 per cent.
Aluminium is mostly arriving here from the Gulf, where output growth was a stellar 27 per cent last year, and China, which had a share of an incredible 28 mt of global output of 54 mt in 2014. Given the speed at which Chinese aluminium smelter juggernaut is rolling defying low metal prices, it will end the year with metal output of well over 30 mt.
Gulf smelters such as Ma'den in Saudi Arabia, Sohar in Oman and Aluminium Bahrain have a common policy of making the metal mostly for world market, India being a focused destination. Cheap gas being the source of electricity, Gulf smelters are found highly cost-efficient.
As China produces more, it will be left with very large exportable surplus, particularly when domestic demand is subdued. In the past five years, our aluminium imports from China grew at a CAGR of 32 per cent. Time for New Delhi to act.
After all, last year's demand growth of aluminium was far better than steel, which it is trying to replace in a number of areas, particularly in automobiles and construction. Aluminium producers' dismay is over imports seizing a growing share of domestic market.
This is forcing local producers to go slow in stepping up production at newly-commissioned smelters. Vedanta is in the process of increasing capacity of the new 325,000-tonne BALCO II smelter in Madhya Pradesh and the first unit of 1.25-mt second smelter at Jharsuguda in Odisha where a 500,000-tonne smelter is running to capacity.
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Similarly, Hindalco is engaged in activating pots at its two greenfield smelters Mahan and Aditya Aluminium with a capacity of 360,000 tonnes each. The largely government-owned National Aluminium Company (NALCO), which a couple of years ago effected metal production cuts to ring-fence its bottom line, will not find it easy to lift production any time now because of rising imports and disturbingly low the London Metal Exchange prices.
NALCO has, however, committed to the government to lift production to 380,000 tonnes in 2015-16 from 327,000 tonnes last year.
An Aluminium Association of India (AAI) paper says even while the country's consumption of the metal grew at a compounded annual growth rate (CAGR) of six per cent since 2010-11, domestic producers' share of local market in the past five years was down to 45 per cent from 60 per cent. Vedanta Aluminium CEO Abhijit Pati says: "Low import duty regime of five per cent on primary aluminium and 2.5 per cent on scrap is playing havoc with local metal producers, which are left to nurse considerable idle capacity." In recent years, the Indian aluminium sector had invested as much as Rs 1.2 lakh crore, doubling smelting capacity to 4.2 mt, says Pati.
This was done in 'rational expectation' that aluminium use here will rise to 3.5 mt - if not more - by 2018 as the economic reforms gather momentum, and major infrastructure projects that have stayed in the backburner for long, get launched.
Aluminium makers are placing high hopes on the electrical sector having a predominant share of 38 per cent share of total metal use and requiring high conductivity material for its expanding transmission system.
But to avoid electricity losses during transmission, conductor lines are better be made from primary aluminium instead of imported scrap, where impurities in the absence of failsafe inspection are prone to occur.
Whatever the cost to aluminium industry, converters in the downstream can be trusted to take advantage of low import tax to bring here large volumes of scrap and waste material. This is exactly what is happening.
In total aluminium imports of 1.563 mt in 2014-15, the share of scrap and waste was 860,000 tonnes. More worryingly for the industry, any amount of aluminium products might be getting imported under scrap heading.
Differential duty rates provide incentive to unscrupulous traders to bring aluminium products as scrap. In the process, the government suffers revenue loss. AAI, therefore, wants uniform import duty on primary aluminium and scrap as is the case with other non-ferrous metals. At the same time, to reign in imports, duty needs to be pegged at minimum 10 per cent.
Russia, home to the world's biggest aluminium producer Rusal, charges 10 per cent import duty. In Brazil, the duty is 20 per cent.
Aluminium is mostly arriving here from the Gulf, where output growth was a stellar 27 per cent last year, and China, which had a share of an incredible 28 mt of global output of 54 mt in 2014. Given the speed at which Chinese aluminium smelter juggernaut is rolling defying low metal prices, it will end the year with metal output of well over 30 mt.
Gulf smelters such as Ma'den in Saudi Arabia, Sohar in Oman and Aluminium Bahrain have a common policy of making the metal mostly for world market, India being a focused destination. Cheap gas being the source of electricity, Gulf smelters are found highly cost-efficient.
As China produces more, it will be left with very large exportable surplus, particularly when domestic demand is subdued. In the past five years, our aluminium imports from China grew at a CAGR of 32 per cent. Time for New Delhi to act.