Domestic aluminium firms differ on protective steps to curb rising imports

With imports of finished aluminium products having risen over 50 per cent year-to-date, the micro, small and medium enterprises (MSME) segment is witnessing sharp margin contraction and slim hope for change in situation for the next six months.

“Margins of MSME players have dropped to 2-3 per cent, from 8-10 per cent, as the surge in finished goods is eating into our business,” Anil Agarwal, patron, Aluminium Secondary Manufacturers Association, told Business Standard.

The trade war between the US and China has led to the dumping of aluminium finished products into India from both these countries along with countries India has a free trade agreement with, such as Vietnam, Malaysia, Singapore, Japan, and South Korea. 

Overall, aluminium imports have grown 21 per cent year-on-year (YoY). “So far, there are no shutdowns in the MSME segment, but there are several units that have come down to barely breaking even when the demand for finished aluminium is sizeable in the market,” said Agarwal.

Primary aluminium producers, too, have been asking for a hike in import duty on primary aluminium to 10 per cent, from 7.5 per cent, and to 15 per cent and 12.5 per cent for downstream, from 10 per cent and 7.5 per cent, respectively. 

“Protection from cheap imports should be for all segments of aluminium and not just select ones. Among downstream producers (MSMEs), the thought is that if primary aluminium import duty goes up, domestic prices will also go up, but in downstream, primary metal is just a pass-through. Moreover, if duty on primary aluminium goes up, the entire chain will see revised pricing,” said Satish Pai, managing director at Aditya Birla Group company Hindalco Industries.

The domestic aluminium industry comprises 3,500 MSME players and three large primary producers —Hindalco Industries, Vedanta, and state-owned National Aluminium Company (Nalco).

The secondary aluminium players see no change in their business situation at least in the near term. “With elections round the corner and the interim Budget just done, we have no hope for any action from the government at least for the next six months. We will have to continue tackling the tough business scenario, finding ways to survive,” said Agarwal.

The MSME players source their raw material such as aluminium ingots, billets, and wires from domestic primary producers, which is currently 14 per cent higher than what is internationally available, making it tough for the segment to compete with cheap Chinese products flowing into the country.

Currently, primary aluminium imports carry a flat duty of 7.5 per cent, while downstream products mostly carry 7.5 per cent, with some also carrying 10 per cent. Scrap aluminium imports, however, carry only about 2.5 per cent import duty and have grown 24 per cent YoY. Despite being part of the same industry, the primary and MSME producers are not on the same page when it comes to asking for protective measures to curb cheap aluminium imports into the country.

“We do not see any need to protect primary aluminium and scrap imports. Scrap imports have risen 27 per cent. This is in line with increased consumption domestic demand,” said Agarwal.

China manages to produce aluminium at a cheaper rate, compared to the global market, mainly because it follows the Shanghai Metal Exchange for price, which is $250-300 per tonne lower than that on the London Metal Exchange, which rest of the world (including India) follows for pricing of their metal. 

The domestic aluminium industry has failed to receive any support from the government. The per capita consumption of aluminium in India is 2.6 kg, compared to the global average of 11 kg and 26 kg for China. 

Currently, aluminium contributes just about 2 per cent to the country’s manufacturing gross domestic product (GDP), which is far lower than other categories like steel at 12 per cent and cement at 9 per cent. However, given the scope for increase in per capita consumption, the industry has potential to make bigger contribution to the manufacturing GDP.

• China aluminium $250-300 per tonne lower than LME
• Scrap import rise in line with increased India consumption
• Aluminium contributes 2% to manufacturing GDP
• Duty on primary aluminium imports to be pass-through for downstream