China's planned curbs on aluminium scrap imports nettles Indian players

The Free Trade Agreements inked with ASEAN nations and low import duty of 2.5 per cent on aluminium scrap makes India vulnerable

China will in July embark on a major step to curb imports of aluminium scrap. In a protectionist move, China, the biggest producer cum exporter of aluminium, plans to classify aluminium under 'Restrictive Imports List', a prelude to banning scrap imports by 2020.

China's revised import priorities have rattled Indian aluminium producers. They feel with China headed for a blanket ban and its festering trade conflict with US would translate into heightened dumping of aluminium scrap into India. 

The Free Trade Agreements (FTAs) inked with ASEAN nations and low import duty of 2.5 per cent on aluminium scrap makes India vulnerable. 

Imports have caused steady erosion of market share of domestic producers like Vedanta Ltd, Hindalco Industries and state run National Aluminium Company (Nalco). In FY2019, imports accounted for 60 per cent share of the domestic aluminium consumption. Imports of aluminium and its finished products scaled an all-time high of 2.3 million tonnes in FY2019, resulting in a forex outgo of $5.5 billion (or Rs 40,000 crore), representing 1.1 per cent of the country's total imports. While total aluminium imports increased 19 per cent, scrap imports soared 21 per cent. The unabated stream of imports has eroded the domestic aluminium players' market share from 60 per cent in FY11 to 40 per cent in FY19.

“Majority of aluminium import into India are coming through the FTA route. Imports from ASEAN form a major share of value added imports led by Malaysia, leveraging the India-Malaysia FTA which allows imports into India at zero duty while applying 25-30 per cent duty on export of India aluminium products to Malaysia”, said an industry source.

In addition to ASEAN nations, Indian aluminium makers see China as a major irritant: a concern duly acknowledged by their counterparts in US, European Union (EU), Canada, Mexico, Japan and Brazil. To add to the woes, China's indigenous aluminium industry is heavily backed by government subsidies and incentives, enabling its smelters to achieve global cost competitiveness.

Back home, Niti Aayog in a report titled ‘Need for an Aluminum Policy in India’ also highlighted the threat from Chinese government support and surplus capacity on global aluminium industry. It pointed out that aluminum imports from China into India are almost 30 times of India’s aluminum exports to China. Trade deficit for aluminum is around  $690 million.

“The ongoing negotiations for Regional Comprehensive Economic Partnership (RCEP) includes China and ASEAN as partner countries. The presence of China is a severe threat which will worsen India's trade deficit, adversely affecting the Indian aluminium industry. In this backdrop, the domestic aluminium industry is requesting for a relook at the FTA, specifically for a strict Rules of Origin criteria is needed to check cheaper imports into India. The industry is also requesting for inclusion of Chapter 76 (Aluminum and Articles thereof) in the negative list of imports under RCEP and asking for avoiding circumvention of Rules of Origin criteria the product originating condition be proposed with change of tariff heading and value addition”, the source added.

As a fall-out of recent global developments, the Indian aluminium industry is confronting immense threat from imports due to reciprocal tariffs imposed by US and China. India is also turning out to be natural market for countries surfeited with aluminium who have started dumping their surplus output.

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