India’s mines ministry will ask its counterparts in the government’s finance department to double the import tax on aluminum to counter cheap imports from the Middle East and China.
Producers have sought an increase in the custom duty to 10 percent, Mines Secretary Balvinder Kumar said in a phone interview from New Delhi. “The industry is in a difficult situation and they need some sort of government support to tide over the situation,” he said.
The news caused Indian aluminum makers to pare intraday losses, said Ashish Kejriwal, a Mumbai-based analyst at Elara Securities (India) Pvt. Vedanta Ltd. fell 0.2 percent to 136.10 rupees at the close in Mumbai, after plunging as much as 4.6 percent earlier. Hindalco Industries Ltd. declined 0.4 percent to 107.70 rupees and National Aluminium Co. dropped 0.5 percent to 38.05 rupees.
Cheap imports into Asia’s third-biggest economy from the Middle East and China and plunging prices on the London Metal Exchange because of global oversupply have made smelters economically unviable, according to Vedanta. Prices of the metal, used in everything from aircraft to window frames, slumped 19 percent in London in the past year to a six-year low.
“In case of a further fall in prices we will be forced to take recourse to down-scaling of operations as our position would become economically untenable,” Abhijit Pati, chief executive officer for Vedanta’s aluminum business, said Wednesday.
Chinese exports of unwrought aluminum and products grew 35 percent to 2.5 million metric tons in the first half from a year earlier, according to customs data. While the world’s biggest producing nation requires a 15 percent export duty on primary aluminum, it offers a 13 percent tax rebate on shipments of semi-fabricated products.
Most of the exports of semi-fabricated products are lightly processed to qualify for the rebate before being used as primary aluminum outside China, according to Klaus Kleinfeld, chief executive officer of Alcoa, the biggest U.S. producer.
“The Chinese smelters have the advantage of lower power costs,” said Elara’s Kejriwal. “Chinese producers don’t work on economics. Even if they are making losses they can sell. There is an oversupply situation as well.”
India mulling higher taxes is an indication of how the world’s aluminum industry is responding to Chinese exports. Alcoa is “considering all options” in addition to cutting costs, Kleinfeld said on a July 8 conference call when asked about possible trade action against China. United Co. Rusal, the world’s biggest producer, will decide in September on further production cuts, Chief Executive Officer Vladislav Soloviev said in June.
Aluminum prices are likely to remain under pressure amid rising Chinese production, Daniel Hynes, senior commodity strategist at Australia and New Zealand Banking Group Corp., wrote in a note on Wednesday. “It’s hard to see any production cutbacks in aluminum in China. This will undoubtedly lead to further growth in aluminum exports,” he wrote.