Realisations of domestic primary aluminium producers are expected to drop in FY19 as increased imports are compelling producers to export at not so attractive prices.
“We had never anticipated such a glut of imports and hence had not tied up long-term contracts overseas. Due to this, we have to sell aluminium in spot market overseas. Since spot has its own vagaries, one may not get best realisations in that market each time,” a top official with one of the primary aluminium producing companies told Business Standard.
Anil Agarwal-led Vedanta Ltd, state-owned National Aluminium Company Ltd and Aditya Birla Group company Hindalco Industries are the major primary aluminium producers in India. Together, the three companies produce 4 million tonne primary aluminium annually and can cater to the entire domestic market where consumption is between 3.6-3.10 million tonne per annum. The excess aluminium production, however, is exported by these companies.
“This year, we are exporting more than 50 per cent of our aluminium production as consumers are getting material at a much cheaper rate which no domestic primary producer can match. Roughly half the consumption is being met via import route mainly through aluminium scrap,” said the official.
Currently, capacity utilisation levels of domestic primary aluminium industry stands close to 90 per cent. Aluminium is a continuous producing industry, which is power intensive, and, hence, dropping of utilisation levels to bring it in line with domestic consumption also comes at a cost. A quick ramp-up and ramp-down is, therefore, not possible.
“The worrisome factor is the degrowth which we are going to see in first half of this year (April-September) in sales of primary producers. It could be double digit degrowth in sales this year. I do not recollect such a scenario in last three to five years,” said the official.
“India has very high power costs and also has cess on coal among other taxes which makes cost of production expensive as against Canada or Norway which have the lowest cost of production. There is a difference of $200 per tonne between Hindalco aluminium and an efficient aluminium smelter in China,” Satish Pai, managing director, Hindalco Industries, had informed at a select media meet recently.
Domestic aluminium consumption during April-June dropped 5 per cent sequentially at the time when imports increased more than 10 per cent, said industry officials. Imports in India for aluminium, including scrap, was 182,000 tonne in April 2018 compared to 154,000 tonne in April 17, an increase of 19 per cent. Out of this scrap imports were ~103,000 tonne in April 18 compared to 78,000 tonne in April 2017 showing an increase of 32 per cent.
In March, the Trump administration said it would impose tariffs on steel and aluminium imports, and on July 1, Washington and Beijing applied tariffs on $34 billion worth of each other’s goods. In April, the US imposed sanctions against Russia's largest aluminium producer Rusal causing havoc in global aluminium market.
In India, imports of primary aluminium attracts duty of 7.5 per cent while scrap imports take place at 2.5 percent duty. As primary aluminium prices shot up to $2,300 per tonne post US move to curb aluminium imports in the country, imports from China and lot of material from Rusal made way to India taking the entire demand-supply equation of domestic market for a toss, informed industry officials.
To combat the high import situation, Aluminium Association of India will be making a detailed presentation to the government by end of July proving the injury to the sector due to high imports of aluminium. The industry is now seeking government intervention to safeguard interest of the primary aluminium players who can cater to the entire consumption of the domestic market with ease.
Scrap processors have a cost of production close to $1,300 per tonne as against the primary producers which is between $1,700-1,800 per tonne. Due to stiff cost parameters, primary producers can never be in a position to cut prices that match scrap rates. At the same time, processing of aluminium scrap cannot be as good a quality as primary aluminium. Light-weight aluminium metal finds wide application in construction and cable segments in the country.