India Grapples with Repercussions of U.S. Metals Tariffs

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The ripples continue to spread across the pond of international trade from President Trump’s steel and aluminum tariffs.

In a recent post from India reported in Aluminium Insider, an analysis of the scrap, primary and downstream semi-finished metals trades into and out of India reveal how economies on the other side of the globe are grappling to contain the fallout of U.S. sanctions.

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India is becoming a growing force in the global aluminum market. With domestic bauxite reserves, relatively low cost (if environmentally polluting) coal-fired power and a huge domestic market, it should come as no surprise the country has invested heavily in aluminum production.

Naturally, that investment, much of it led by the private sector, is patchy and not fully integrated. The country imports significant quantities of scrap for its growing die casting industry, in large part because, as a newcomer to aluminum consumption, domestic arisings are far too low to meet demand.

The article states India’s overall scrap imports have risen 24% year-on-year, so far fueled by cheap U.S. exports looking for a home after China raised import tariffs. Domestic primary producers are complaining because die casters and billet casters are therefore incentivized to use more scrap than primary metal.

Primary producers are facing competition not just from scrap, the article explains. India is facing increased imports of wire rods and aluminum alloy ingots from the Association of South East Asian Nations (ASEAN) region. India signed free trade agreements (FTAs) with the countries comprising the ASEAN at a time when market dynamics allowed Indian producers to compete more effectively.

Now, with duty-free trade and a distorted regional market awash with product, India has become a target for excess supply.

Meanwhile, downstream semi-finished product mills are protesting vehemently to rising imports of semi-finished products, particularly from China.

At the end of June 2018, imports met 60% of the country’s internal aluminum consumption. So, although domestic demand is rising at 10% per annum, domestic producers are at risk of being crowded out by imports.

Domestic consumption of primary aluminum metal rose from 1.58 million metric tons in FY 2014-2015 to around 2 million tons in 2018, the article reports, and is predicted to double by the early part of the next decade. Per capita consumption has been very low, as in most emerging markets — but with a population of 1.3 billion, even a 5% increase in personal consumption equates to a dramatic uplift in total demand.

Domestic primary producers, though, fear they are being crowded out, even though they hold a disproportionate sway in their local market.

The reality is downstream producers have the most to fear.

There are just three large primary producers – Vedanta, Hindalco and the state-sponsored National Aluminium Company (Nalco), yet there are some 3,500 downstream operators making everything from rolled to extruded, cast and forged products. Many operate at depleted levels, utilizing barely 55% of their nameplate capacities. They have limited pricing power and are held captive on pricing by the major upstream suppliers; now they face widespread competition from imports, which are further impacting profitability and sapping investment that is desperately needed to raise quality standards.

Not surprisingly, the Aluminium Association of India is pushing the Indian government to protect the domestic aluminum industry the way U.S. and China are doing it: by using duty levies, the article reports.

The association has called for curbs on imports of aluminum, either by abolishing inverted duty structures or hiking customs duties on imports of aluminum end-use products (or both).

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For a country fond of tampering with duties, it would be no surprise to see import duties rise next year and some form of control implemented, even with those ASEAN partners with whom India recently signed FTAs.

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