Increased aluminium imports to hit realisations of domestic producers

Domestic aluminium industry may see double-digit growth in sales this fiscal; Exports provide no relief

Realisations of domestic primary aluminium producers are expected to drop in 2018-19, as import surges. The industry is preparing a plea to the government for protection.

“We had never anticipated such a glut of import and, hence, had not tied up long-term contracts overseas. Due to this, we have to sell abroad in the spot market, which has its own vagaries,” a top official with one of the primary producers told Business Standard.

Anil Agarwal’s Vedanta, state-owned National Aluminium Company and Aditya Birla Group's Hindalco Industries are the major primary producers. Their combined annual output is four million tonnes and can cater to the entire domestic market, where consumption is usually 3.1-3.6 mt. Excess production is exported by these companies. 

“This year, we are exporting more than 50 per cent of our production as consumers are getting material at a much cheaper rate, which no domestic primary producer can match. Roughly half the consumption is being met via import mainly through aluminium scrap,” said the official.

Currently, capacity utilisation of the primary industry is close to 90 per cent. Aluminium is a continuously producing industry and power-intensive; dropping of utilisation levels to bring it in line with domestic consumption comes at a cost. So, quick ramp-up and ramp-down is not possible.   

“The worrisome factor is the de-growth we are going to see in first half of this (financial) year in sales of primary producers. It could be double-digit de-growth this year. I do not recollect such a scenario in the last three to five years,” said the official.

“India has very high power costs and also cess on coal, among other taxes, which makes cost of production expensive as against Canada or Norway, which have the lowest cost. There is a difference of $200 a tonne between Hindalco aluminium and an efficient aluminium smelter in China,” Satish Pai, managing director at Hindalco Industries, had told journalists recently. 

Domestic consumption during April-June, first quarter of 2018-19, dropped five per cent sequentially; import rose a little above 10 per cent, said industry officials. Import, including scrap, was 182,000 tonnes in April, a 19 per cent rise from a year before. Of this, scrap import was 103,000 tonnes, a rise of 32 per cent from April 2017. 

Scrap processors have a cost of production close to $1,300 a tonne; those of primary producers is $1,700-1,800 a tonne. Due to stiff cost parameters, primary producers can never be in a position to cut prices that match scrap rates. At the same time, processing of scrap cannot produce the same quality as primary aluminium. 

In March, the US government said it would impose tariffs on steel and aluminium import; on July 1, Washington and Beijing applied tariffs on $34 billion worth of each other’s goods. In April, the US imposed sanctions against Russia's largest aluminium producer, Rusal, causing turmoil in the global market. 

In India, import of primary aluminium attracts a duty of 7.5 per cent; scrap import is at 2.5 per cent duty. As primary prices shot up to $2,300 a tonne after the US move to curb aluminium import, shipment from China and from Russia made way to India, upsetting the usual demand-supply equation here, say industry officials. 

Aluminium Association of India will be making a presentation to the government by the end of this month, on injury due to the high import. It wants state intervention to stop this.