Indian govt actively considering aluminium industry's wish to raise import duty

Government of India finally seems to be waking up to the crisis situation which domestic aluminium industry is going through. Union Minister for Steel and Mines, Narendra Singh Tomar said, "Dumping by China is a big reason. They are selling for lower than their production cost. It may be their strategy but it is damaging us." The government has increased the import duty on steel on more than one occasion. It also imposed anti-dumping and safeguard duties. The odds are that more action is in the offing to shelter the metal producers, Tomar said.

The aluminium industry is currently reeling under not just cheap imports but also rising costs, largely due to higher taxes on coal, and a steep decline in aluminium prices.

India consumes around 3.5 million tonnes aluminium every year, of which 1.5 million is imported, mostly from China and West Asia. Since 2011, the import surge has been a steep 159 per cent. In the first half of the financial year, the share of imports in total consumption was 56 per cent. Over the past few years, the domestic aluminium industry has witnessed significant capacity addition, and is currently operating atonly 50 per cent capacity, making debt servicing more difficult.

Continuous fall in global aluminium prices -40 per cent from $2,474 a tonne in November 2014 to $1,479 a tonne in January 20165 - has impacted the profitability of companies. Hindalco reported a 33 per cent decline in operating margin in the July-September quarter while Vedanta reported a loss in its aluminium business - which contributes 18 per cent to overall revenues - in the October-December 2015 period.

The government says it is actively considering the industry's wish for raising the import duty on aluminium from 5 per cent to 15 per cent. The aluminium industry also faces inverted duty structure where the duty is 5 per cent on imported finished products and 7.5 per cent on raw materials. It is trying to convince the government to reduce the import duty on raw materials to 2.5 per cent.

Meanwhile, bauxite exports to China have surged 52 per cent in the past one year. There, value addition takes place and finished aluminium is exported back to India. The industry is pitching for increasing the export duty on bauxite from 20 per cent to 50 per cent to discourage China and others from buying it cheap from India and then selling back value-added material, which competes directly with what is produced by the Indian players.