Indian aluminum sector knocked off course by pandemic

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The Indian aluminum sector, which once stood firmly on the path of growth, today finds itself buffeted by the winds of uncertainty because of the COVID-19 pandemic.

Industry leaders have suggested many measures to the India government to put the sector back on track.

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Indian aluminum sector calls for removal of export cap

Uppermost on the list is a request to allow an export scheme for aluminum without any cap on the total exports.

The Engineering Export Promotion Council (EEPC) of India recently wrote to the Commerce Minister to continue with the Merchandise Export from India Scheme (MEIS Scheme) without any limit on the aluminum exports. The change would help the sector survive the current crisis situation, the Council argues.

Floated last year, the government trimmed the MEIS in the fiscal relief package recently extended to exporters. The government found it “unsustainable.”

The view is that, in general, the MEIS had failed to boost exports and capture new markets.

Critics argue MEIS cut hurts Indian aluminum sector

But experts, like Economics Affairs Secretary R. Gopalan, beg to differ.

Writing in the Financial Express, Gopalan said shrinking the MEIS had hurt the Indian aluminum industry, as the industry had to continue to rely on exports because of weak domestic demand. As such, so, the government had to support aluminum exports.

The only option left for the industry to sustain itself in these times of the pandemic is to export aluminum products, Gopalan said. As such, the decision to suddenly stop the MEIS, he felt, could have “a debilitating impact” on exporters’ ability to survive under current difficult conditions. Gopalan felt it would hurt exporters that work on long-term contracts.

Indian aluminum is one of the high-growth areas which could propel the nation’s GDP. However, the COVID-19 pandemic has already affected India’s aluminum exports. Export values declined 11% from U.S. $5.7 billion in fiscal year 2019 to U.S. $5 billion in fiscal year 2020. The new directive with regard to MEIS would render aluminum exports vulnerable and uncompetitive.

Mining group calls for import curbs

In parallel, the Federation of Indian Mineral Industries (FIMI) has urged the government to curb aluminum imports. Furthermore, the federation asked the government to facilitate the “tapping of rich and almost inexhaustible” domestic resources by local players.

Despite robust domestic demand and sufficient domestic aluminum capacity, India imported 60% of the aluminum it consumed. The result of this forex outgo, according to Vice-president R.L. Mohanty.

Domestic primary aluminum producers — such as Hindalco Industries and the Anil Agarwal-led Vedanta Ltd — are already working with the government at three levels: primary aluminum, scrap and downstream products. They have been asking the government to implement remedial measures, such as anti-dumping and anti-subsidy duties, the Business Standard reported.

Hindalco, the world’s largest aluminum rolled products manufacturer (especially in beverage cans and auto body), recently acquired Aleris. With this move, the company can now produce aerospace-grade aluminum sheets. It is also focusing on building capability in India to be part of the India growth story.

Meeting future aluminum demand

Domestic consumption of aluminum is expected to reach 10 million tons by fiscal year 2031-2032. To meet this future demand, India needs to increase bauxite production from 23 million tons in fiscal year 2019 to approximately 70 million tons by that time. Alumina production would have to rise from 7.4 million tons to 20 million tons.

India is No. 2 in the world in aluminum capacity. The country has primary aluminum capacity of 4.1 million tons per year and downstream processing capacity of 3.9 million tons.

Recently, the aluminum industry had made huge investments to increase domestic production capacity from 2 million tons per year to 4.1 million tons per year.

But experts fear that the COVID-19 crisis, coupled with the new government policies, could derail this growth story.

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