The government’s efforts to protect aluminium producers may fail if its proposed safeguard duties on imports from China is less than 10 per cent, say industry analysts and representatives.
India’s Trade Secretary G K Pillai said on Thursday that the government would impose safeguard duties on Chinese aluminium imports and was probing shipments of other goods.
The issue has triggered a trade row as China warned that such moves can hurt bilateral trade ties.
“The Chinese may put pressure through the World Trade Organisation to keep the safeguard duty as low as 5 per cent,” fears an analyst at a Mumbai-based foreign brokerage firm.
Spot price for aluminium on the London Metal Exchange (LME) was down to $1,269 a tonne on Saturday from a high of $3,271 on July 11 last year.
The cost of production for Indian aluminium makers is currently more than $1,450 per tonne. At the current price, even firms such as Hindalco Industries, the largest producer in the country, and government-owned National Aluminium Company (Nalco) would not be able to recover their operational costs.
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This has built high inventories with the Indian firms as they are doing only contract selling where the price is already fixed over their cost of production. Analysts expect Nalco’s inventory level to reach 30,000 tonnes by the end of March, if it does not sell in the spot market. The company’s normal inventory level is 5,000 tonnes. Nalco officials were unavailable for comment.
“For primary aluminium, a minimum 10 per cent safeguard duty is required,” said a senior executive at Hindalco. “For value-added aluminium, it should be at least 25 per cent to protect the Indian producers,” he said. For Chinese companies, the cost of production is estimated to be in the range of $12,000 to $13,000 a tonne.
“Chinese producers have a high scale of operation, so their production costs is also lower,” said Vipul Shah, an analyst with Mumbai-based brokerage K R Choksey Shares. “Besides, their domestic consumption has fallen this year, which would lead to dumping of their rising inventory to India and other countries,” he said.
The shipping cost to India is currently $20-25 a tonne for aluminium, which makes the country a favourable dumping ground and a threat for domestic producers.