Aluminium scrap imports have risen 6.5 per cent during April-September of FY20 despite the slump in the auto sector.
The Indian auto sector's production tumbled 13 per cent in this period, Aluminium Association of India (AAI) submitted in a representation to the Ministry of finance, citing figures from the Society of Indian Automobile Manufacturers (SIAM).
“In the garb of imports for the auto sector, scrap is being consumed in other sectors like electrical transmission and utensils. But use of scrap in such sectors is detrimental and only primary aluminium should be used,” said an industry source.
Aluminium scrap with high lead content and traces of radioactive elements poses environmental and health hazards in sensitive applications like consumer durables and utensils. Use of scrap also leads to conductivity and electricity losses in electrical appliances and power transmission lines where the cost of failure is steep for the national economy.
AAI feels that the benign import duty of 2.5 per cent on scrap is fuelling surge in inbound shipments. Except for aluminium, other non-ferrous metals have equal duty for both primary metal and scrap. Aluminium producers are confronting high duty differential between primary metal and scrap. While scrap attracts a mild duty of 2.5 per cent, the duty on primary aluminium is pegged at 7.5 per cent plus premium over LME (London Metal Exchange) prices.
The total differential between primary aluminium and scrap comes to $400-500 per tonne. “Additionally, there is a possibility of evasion of duty by mis-declaration of non-scrap imports, resulting in direct revenue loss to the government exchequer”, AAI noted in its submission.
“Despite significant primary aluminium capacity and sufficient domestic scrap availability, India’s consumption of scrap is 100 per cent import dependent. Aluminium scrap imports in India are totally non-essential in nature and should be restricted to encourage domestic aluminium industry and recycling of indigenous scrap”, it added.
The country's primary aluminium industry is facing heightened threat from scrap imports that had 58 per cent share in overall imports in FY19, resulting in a foreign exhange outgo of $2.5 billion or Rs 17,200 crore.
Going ahead, the risks for India's primary aluminium producers are set to be amplified with both US and China levying reciprocal tariffs. Moreover, China in a protectionist move, has launched crackdown on scrap and metal waste imports, announcing five per cent additional duty on scrap imports from December 15 this year. China has imposed quotas for cutting scrap imports and classified aluminium scrap in restricted import list from July 2019, with a plan to completely ban all scrap and waste by 2020.
During the January-March period of calendar 2019, India has already edged past China as the largest scrap importer. Besides China, European Union (EU) and other developed countries have imposed stern standards for scrap, leading to US diverting huge scrap shipments outside of these countries and placing India at a bigger risk.
In FY19, India's scrap imports from US soared 149 per cent while total scrap imports rose 21 per cent. The domestic aluminium industry is pinning hopes on Government of India's upcoming Vehicle Scrap Policy that mandates scrapping of 28 million vehicles plying on roads for a decade. The policy implementation is expected to ensure abundant availability of domestic scrap.