In today’s Finshots, we tell you why the Indian aluminium industry is asking for more trade protection through import duties.

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The Story

Aluminium is a resourceful metal. Lightweight yet strong, endlessly recyclable, and versatile enough to be used in everything from soda cans to space shuttles. It’s the second most used metal globally after steel, which cements its position as a strategic resource. And that’s why many countries work hard to protect their aluminium industries, often using tools like tariffs and import duties to shape the flow of this essential metal.

Simply put, tariffs or import duties are extra taxes on goods coming into a country. They make imported goods more expensive, which helps local businesses compete by giving them a fair chance to sell their products.

And now, the Indian aluminium sector wants in on the action, for which it’s lobbying hard for higher import duties ahead of Budget 2025.

Why the urgency, you ask?

You see, there are two ways to get aluminium. First, there’s primary aluminium, made from ore called bauxite. And then there’s secondary aluminium, which comes from recycled scrap. Think old car parts, airplanes or even kitchen utensils. So, if industries want aluminium, they have two choices: mined aluminium or scrap. But sourcing either of them in India has its own challenges.

Because here’s the thing. India is the second largest producer of aluminium in the world. Yet, we don’t consume as much aluminium as some other countries. To put things in perspective, the average Indian uses just 2 kg of aluminium per year, compared to the global average of 8 kg. But thanks to the push for initiatives like ‘Make in India’, the demand for it is skyrocketing. At the moment, we produce close to 4 million tonnes of aluminium annually, but we’re already consuming 4.5 million tonnes. And by the end of the decade, that demand is expected to hit a whopping 10 million tonnes. So, we’ve no choice but to import the metal.

The catch though is that importing primary aluminium comes with a hefty 7.5% duty. Importing secondary aluminium, on the other hand, is cheaper at just 2.5%. Naturally, this has made cheap aluminium scrap imports the go-to option for India.

In fact, so far India has imported 1.8 million tonnes of aluminium scrap in FY25, more than double what it was a decade ago. Most of this comes from places like China, and it’s wreaking havoc on the domestic aluminium industry.

If you’re wondering why, it’s because much of this scrap doesn’t meet quality standards, undermining local producers. So it’s no wonder that India’s aluminium producers are up in arms. They’ve been demanding a uniform import duty of 7.5% on scrap (up from 2.5%) and a hike in duties on primary and downstream aluminium products (aluminium raw materials used in production) from 7.5% to 10%.

And this isn’t new. Last year, they raised similar concerns, pointing out that imports now account for over 50% of India’s aluminium demand, putting immense pressure on domestic players. The government has been listening, too. It has imposed anti-dumping duties on specific products such as anodised aluminium frames used in solar panels. But these measures barely scratch the surface of the problem.

For context, India’s over reliance on cheap aluminium imports results in over ₹56,000 crores of annual foreign exchange outflow or 1% of India’s import bill. In FY24 alone, aluminium imports shot up by 30% year-on-year, fueled by imports from China and free trade agreements with ASEAN and Middle Eastern countries.

Meanwhile, domestic producers have seen their market share plummet from 60% in FY11 to just 45% in FY24.

So yeah, these demands do seem pretty fair.

But you might ask: Finshots, if it were so easy to do so, why didn’t the government go ahead and impose tariffs on these imports way earlier?

Well, because it’s not as straightforward.

Consider China, which dominates global aluminium production, accounting for over half of it. Recently, China shifted its strategy to focus on exporting higher-value downstream products like aluminium sheets and frames. These products are not only cost-effective but also of superior quality, making it even harder for Indian producers to compete.

Then there’s the US, which has also ramped up protection for its aluminium sector, imposing anti-dumping duties on imports from many countries. This leads to excess aluminium being diverted to markets like India, further intensifying competition for local manufacturers.

For Indian producers already struggling with wafer thin profit margins, this is yet another blow.

And the challenges don’t stop at trade policies.

The aluminium industry’s troubles ripple across the economy, impacting sectors that depend on the metal. Take automakers, for example. Companies like Jaguar Land Rover (JLR) rely heavily on aluminium for vehicle production. Any increase in import duties could raise their costs, squeezing margins and potentially leading to higher prices for consumers. And today, it’s not just import duties, but a shortage of aluminium supply itself that’s hurting carmakers like them.

Similarly, a spike in primary aluminium prices might drive up demand for recycled aluminium, straining supply chains and inflating costs in that segment too.

And let’s not forget the environmental side of things, which just makes the whole issue even trickier. While aluminium is championed for its recyclability, producing primary aluminium is highly energy-intensive. A significant portion of China’s aluminium production relies on coal-powered electricity, raising questions about the environmental cost of importing cheaper aluminium. So yeah, as the global push for sustainability gains momentum, countries might introduce carbon tariffs on aluminium imports, complicating matters for India.

What’s the way out then?

Well, maybe it’s time to take a cue from how global players are tackling this. Just look at countries like the US and Canada. They’ve long used tariffs to shield their aluminium sectors. For instance, the US imposes a 10% tariff on aluminium imports, while Canada levies a hefty 25% duty on aluminium imports from China, among other restrictions. So, if India wants to nurture its aluminium industry, similar protections seem necessary.

However, as we just saw, protectionism could be a double-edged sword. Higher import duties could invite retaliatory tariffs from trading partners, as seen in 2018 when India imposed tariffs on US agricultural products in response to American duties on steel and aluminium. Additionally, increased duties might inflate input costs for industries reliant on aluminium, fuelling inflation and potentially slowing economic growth.

So the answer lies in striking a balance. Maybe staggered import duty hikes can do the trick? Or rolling incentives for domestic production, investments in recycling infrastructure and strategic trade agreements?

Whatever it is, the stakes are high. With Budget 2025 around the corner, all eyes are on the finance ministry. And the choices made in the months ahead won’t just impact aluminium producers but the entire ecosystem built around this incredibly versatile metal.

Until then…

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