Primary aluminium makers, secondary producers spar over imports, prices

The primary aluminium manufacturers and their counterparts in secondary re-melting industry have locked horns over an array of issues concerning the domestic market with imports and metal prices being the most contentious points.

Reacting to a string of allegations made by Aluminium Secondary Manufacturers Association (ASMA), the Aluminium Association of India (AAI) has written to the Prime Minister's Officer (PMO), with a point wise rebuttal.

Responding to the allegation that primary producers are supplying in the domestic market at prices 14 per cent higher than international prices, AAI clarified that aluminium prices are linked with London Metal Exchange (LME) prices and regional  product premiums which is the global benchmark for all aluminium producers worldwide. “Aluminium exporters avail export benefits along with some credits for the duties/ taxes paid on inputs. So the net difference between export and domestic price in aluminium would be about 2-4 per cent and not 14 per cent. The above allegation has added premium and other charges like freight etc  to add up to 14 per cent only to misguide the readers”, AAI noted in the letter to principal secretary to the Prime Minister.

On allegations of the primary producers enjoying higher profit margins, AAI explained that being a capital intensive industry, the Return on Capital Employed (RoCE) will be a better benchmark  since  profit  margins  do  not  consider  depreciation  and high interest  cost.  At  the  current aluminium price of $1800 (per tonne), the ROCE is only 5-6 per cent against a cost of capital of over 12 per cent. That apart, the domestic aluminium industry is going through a tough phase and struggling to be cost competitive with production costs by Indian producers occupying the highest quartile in the curve.

Also, reacting to ASMA's contention that use of aluminium scrap is encouraged all over the world, AAI pointed out that globally large economies and countries with high aluminium consumption have laid down strict standards and guidelines for scrap recycling, usage and imports.

ASMA, too, has come up with its counter to the averments by AAI. In its letter to the principal secretary to the Prime Minister, ASMA held that while aluminium prices are linked to LME, the primary aluminum industry gets extra benefits while selling the material in the domestic market on import parity prices. The  benefits include customs duty of 7.5 per cent and clearing, forwarding and finance charges which comes to about three per cent.

ASMA also claimed in the letter that Indian primary producers have the cheapest manufacturing cost in the world with linkage of excellent quality bauxite reserves allocated to them by the government. To substantiate, the association said National Aluminium Company (Nalco) was selected as the cheapest alumnina manufacturer in the world last year.

“It was due to the pressure from the primary producers when import duty was increased by 2.5 per cent by the Government of India in 2016-17 from five per cent to 7.5 per cent. They are selling about 2.4 million tonnes of primary aluminium in the domestic market on higher prices of about 14 per cent, thus  earning additional profit of about Rs 3000 crore over and above the normal profit”, ASMA noted in the letter.

Defending its position on scrap, ASMA said use of scrap saves energy and protects the environment. Production of primary aluminium produces huge amount of carbon fossil gases and has a baleful impact on the environment. To produce one tonne of primary aluminium metal, a smelter requires 14500 units of power which is generated by burning 11.7 tonnes of coal.