China, Australia Subsidies Indirectly Hit Indian Aluminum Producers

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Recent distortions in the international aluminum markets, some of them caused by subsidies granted by the Chinese and Australian governments to domestic aluminum smelters, have indirectly had a negative impact on Indian aluminum producers.

Industry majors may not have said this openly, but a protectionist environment offered to its aluminum producers by China’s government had not only led to international market prices going off the predicted path, i.e., downward, but also forced the demand-supply ratio to go askew, thus impacting the growth plans of some companies in India, said some analysts here.

Many Indian producers had predicted the aluminum price per metric ton to waver between US $2,100 & $2,300 on the London Metal Exchange (LME) in 2012, but that does not seem to be happening.

The chairman of the National Aluminum Company (NALCO), S.L. Bagra, dropped a hint of the negative impact of subsidies in a recent interview to the Indian news service PTI. He told the news agency that of late, the Chinese and Australian governments were trying to support their companies with subsidies which was one the causes of price distortion in the international markets.

At the time of the FY 2012 financial result announcement, Debu Bhattacharya, managing director of Hindalco Industries, told The Business Standard that the aluminum business in India could take a beating this quarter because the situation was much worse than what was prevalent in the fourth quarter of FY 2011.

Towards the end of June, aluminum prices at the LME had hit their lowest levels in two years, partly due to the metal’s “chronic oversupply.” China and Australia’s respective governments were heavily subsidizing financially unviable smelters there by providing them cheap power (a major component of aluminum smelting) to keep operations ongoing, leading to this oversupply. Even the US House of Representatives passed an anti-partisan bill in March this year to allow the government to continue imposing countervailing — or anti-subsidy — duties on goods from “nonmarket economies,” like China.

A Reuters report in early July stated that China’s provincial governments were propping up a quarter of their domestic aluminum production through power subsidies despite a low global demand. These were playing a huge part in turning loss-making operations into profitable centers.

Other online news reports said it was almost the same in Australia, where provincial governments were found doling out subsidies for over a decade.

Continued in Part Two. Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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