Aluminium firms seek cut in input duties as production costs, imports swell

The domestic aluminium companies are also faced with international headwinds like crashing LME prices and unabated growth in imports.
Unnerved by rising imports and hike in cost of metal production, aluminium producers have demanded overcoming anomalies in the duty structure by slashing duties on critical inputs.

With steep import duties of critical inputs rendering finished aluminium products uncompetitive in international markets, manufacturers have urged the Government of India ahead of Budget for FY21 to slash taxes on essential ingredients.

The aluminium companies represented through the Aluminium Association of India (AAI) have called for cutting import duties on four key inputs- calcined petroleum (CP) coke, caustic soda lye, aluminium fluoride and green anode to 2.5 per cent.  The prevailing duty on these inputs is in the range of 7.5-10 per cent.

“Indian finished goods are costlier and uncompetitive in international markets, rendering negative protection against cheaper imports of finished products and discourages value addition within the country. It is necessary to slash basic customs duty on the critical raw materials to improve the cost structure of the aluminium industry and enhance competitiveness”, said an industry source.

Indian aluminium industry is also dogged by an inverted duty structure. While imports of calcined petroleum coke is taxed at 10 per cent, finished aluminium products attract 7.5 per cent duty. Likewise, caustic soda lye import  duty is pegged at 7.5 per cent while duty on alumina is lower at five per cent.

CP coke is a crucial raw material, contributing to 6-8 per cent of the aluminium making cost. The import duty on CP Coke was increased from 2.5 per cent to 10 per cent on December 14, 2017 to restrict import of CP coke which was being used for fuel purpose. It resulted in increase in custom duty for non-fuel  grade petroleum coke. The aluminium  industry  uses  CP  coke  (non-fuel  grade),  with  maximum 3.5 per cent  sulphur  content which  is poorly  available  in  India  and  cannot  meet  the  domestic  requirement  thereby  rendering  India  a  net importer of CP Coke, with major import share for aluminium.

Another critical input caustic soda lye has a share of 20 per cent in the alumina making cost. India is a net importer of caustic soda and over 60 per cent of the imports is consumed by the aluminium industry.

“The Indian aluminium industry is going through a challenging phase and is under immense threat by rising imports, declining domestic market share, increasing production and logistics costs. Moreover, the non-competitive energy costs and the current precarious situation due to acute coal shortage for the industry have adversely affected the sustainability of the Indian aluminium industry”, noted a letter by AAI to the Ministry of Finance.

For aluminium makers, the cost of production has shot up by 30 per cent in the last three to five years due to rising costs of critical ingredients, inverted  duty structure on imports of raw materials, hike in coal cess, renewable purchase obligation (RPO), electricity duty and logistics costs.

The domestic aluminium companies are also faced with international headwinds like crashing LME prices and unabated growth in imports. Between May 2018 and October 2019, LME aluminium prices have tumbled 25 per cent from $2290 per tonne to $1718, squeezing realisations.

Moreover, as a fall out of the escalating US-China trade tensions, the Indian aluminium industry is burdened with an immense threat from imports. With both US and China imposing reciprocal trade tariffs, India has turned into a natural market for exporting countries with a glut in supplies. China planning to proscribe all scrap and waste imports by 2020 has mounted worries on Indian aluminium makers. In FY19, aluminium imports by the country scaled an all-time high of 2.18 million tonnes, valued at $5.5  billion (or approximately Rs 38,000 crore). In volume terms, the total aluminium imports spiked 18 per cent whilst scrap imports alone rose 20 per cent year-on-year in the last fiscal.

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