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

Jun 3,2019

In July China will 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 the US would translate into heightened dumping of aluminium scrap into India.


The Free Trade Agreements (FTAs) inked with the Association of Southeast Asian Nations (ASEAN) and low import duty of 2.5 percent 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 a 60 percent 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 foreign exchange outgo of $5.5 billion (or Rs 40,000 crore), representing 1.1 percent of the country's total imports. While scrap imports soared 21 percent, total aluminium imports increased 19 percent. The unabated stream of imports has eroded the domestic aluminium players' market share from 60 percent in FY11 to 40 percent in FY19.


Majority of aluminium import into India are coming through the Free Trade Agreements route. A major share Imports from ASEAN of value-added imports led by Malaysia, leveraging the India-Malaysia FTA which allows imports into India at zero duty while applying 25-30 percent duty on export of India aluminium products to Malaysia.


In addition to ASEAN nations, Indian aluminium makers see China as a major irritant: a concern duly acknowledged by their counterparts in the 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.


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