Budget 2019: Aluminium makers want new govt to ring-fence them from imports

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Miffed at the spate of imports, domestic aluminium producers have enlisted a bevy of demands before the newly elected government. In their wish list for the full-fledged Budget for FY20 likely to be tabled on July 5, aluminium companies have asked for rationalising duties by wiping out the inverted duty structure and exempting them from the GST compensation cess levied at Rs 400 per tonne of coal.

Wary of the cost push factor from ingredients in aluminium making, domestic producers want duty on critical inputs such as calcined petroleum coke, caustic soda, aluminium fluoride, green anode and coal tar pitch to be cut to 2.5 per cent. Currently, the duties on these components, largely imported by aluminium companies, are taxed in the range of five to 10 per cent. For calcined alumina, the players are advocating duty-free imports, down from the present rate of five per cent.

While Hindalco Industries and state run National Aluminium Company (Nalco) are adequately fed by their captive bauxite mines, their peer, Vedanta Ltd, leans heavily on imports to feed its smelters. Almost 35 per cent of the domestic alumina requirement is met through imports.

The escalating costs of inputs is making Indian aluminium non-competitive in international markets. 

“The cost of production of aluminium metal in India has substantially increased over the past three to four years due to rising cost of raw materials, increase in various duties, cess and high logistics costs. As per global aluminium cost reports, the average production cost of Indian aluminium producers is amongst the highest in the world. While other aluminium producing countries support their domestic industry with cheaper raw material availability, power and subsidies, India is  struggling to retain competitiveness despite  possessing the fifth largest bauxite and coal reserves in the world”, an industry source said.

The bearish trend in LME (London Metal Exchange) aluminium prices has not solaced the domestic makers. Over the past one year, aluminium prices on LME crashed by 24 per cent from $2290 per tonne in May 2018 to $1740 in May 2019. Production cost of aluminium in India has followed a contrarian trend, soaring 25 per cent in the last three years. 

Aside from hike in prices of critical inputs, aluminium makers are sore over the GST compensation cess of Rs 400 per tonne on coal. They have clamoured for removal of this cess to support power intensive industries and help them retain the competitive edge. 

“The steep hike in coal cess has adversely impacted the sustainability of the aluminium industry. Being a highly power intensive industry, coal contributes to about 40 per cent of the metal production cost. To illustrate, one tonne of aluminium consumes 1.7 tonnes of coal”, the source added.

A recent report by planning think-tank Niti Aayog corroborated the concerns of aluminium makers. “Amongst the largest producers of aluminum like Canada, Russia, Middle East, Norway and China, India has 
the highest cost of production. This can be attributed to high power cost in India. Coal cess alone amounts  to almost a fifth of the cost of mining coal. Despite having a competitive advantage in coal, India is one of the most expensive places to produce coal-based electricity. It is recommended that RPO (Renewable Purchase Obligation) obligations, coal cess and electricity duty charges may be rationalized to make these sectors competitive”, it noted.

Aluminium companies are also in the teeth of external threats posed by spiralling imports which now have a staggering 60 per cent share in domestic consumption. Imports scaled an all-time high of 2.37 million tonnes in FY19, resulting in forex outgo of about Rs 40,000 crore.

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