Aluminium imports from China continue to hurt domestic producers

We all know that cheap imports from China is hurting the domestic aluminium manufacturers the most. But how exactly? And how can this be countered to ensure that the Indian market does not suffer? Let us break it down for you in a simple manner.

Before we begin, let us know about the Safeguard Duty.

To safeguard the financial interests of any injured industry in India, the government can introduce a temporary duty (superior to import duty) if it sees a sudden surge in imported goods. This is called Safeguard Duty and is independent of Free Trade Agreements with any country. A 20% duty on imported steel has already been imposed in favour of the steel industry and thus offered relief to the all the domestic steel manufacturers.But this has not been revised for the Aluminium sector in a long time.

OK! Show me the numbers!

Currently, there is no Safeguard duty for the domestic industry. Cheap exports by China is wreaking havoc on the national aluminium manufacturers. Combined with the downturn in the commodity cycle, aluminium prices have dropped significantly over time. Huge losses have been incurred by primary producers in the last 7 quarters. A total loss of Rs.4,852 Crores was incurred in the last 7 quarters. A loss of Rs. 3,372 Crores was incurred in last 3 quarters itself. Prices have reduced drastically from the levels of Rs. 1.58 Lacs/MT in Q3 FY’15 to Rs. 1.18 Lacs/MT in Q4 FY’16 i.e. a drop of 25.31%.

What! Can you be more specific?

Pic 1

In Pic 1, we can see that there has been an increase in the imports from the last fiscal year. Based on the current market scenario, the predicted increase in imports from China in the next fiscal year is going to be exponential. Imports from Middle East have unabashedly risen and will continue to do so in the next fiscal year too.

Understood. Now what is this graph for?

Pic 3

This graph shows the actual and predicted data for the FY'16. Clearly, the domestic consumption is increasing and so are the imports. Although the trend of imports from Middle East has risen, the Chinese imports are also increasing in spite of an increment of import duty by 2.5% from last FY. This should not be the case as the increase in import duty should deter the purchase of aluminium from outside. What we are observing is just the opposite.

Well… what do we do now?

The country is facing a situation wherein 50% of its demand is being met through imports from China and the Middle East. It is well known that the Chinese aluminium industry's energy and logistics bill is subsidised by their government. To counter this, the domestic producers are trying to petition for a safeguard duty of 20% immediately. It is the only solution which can help curb the cheap imports from China.

Whoa! So things can actually turn around, huh?

Yes. All these measures facilitated by the government can really help the domestic producers nurse the ailing industry back on its feet. It will surely give a major boost to the 'Make In India' campaign started by the government.

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