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Madhumita Chakraborty
New Delhi, Feb 12: The aluminium industry, which has its fingers crossed over a revision in customs duties, may get a `swadeshi' surprise in the form of a slight customs-duty hike for semi-fabricated products and perhaps even primary metal.
The odds against the warring segments of the industry, that pull at opposite ends during lobbying time each year, are however, almost even, which can result in a status quo. National Aluminium Company (Nalco) chairman and managing director SN Johri foretells a status quo in customs duties for the industry even though a company like his should ideally lobby for a hike. Priimary-metal producers, who peg their prices to the London Metal Exchange (LME) aluminium rate, want a duty hike as a safeguard against the crash in aluminium prices world-wide. Aluminium prices have tumbled steadily beginning 1997, resulting in a 25 per cent drop since then.
The current price in the world market is about $1,200 a tonne, against the 1997 LME price of $1,600 a tonne and last year'saverage price of $1,368 a tonne. The largest producers of primary metal in the country are Nalco and the private-sector Hindustan Aluminium Company (Hindalco). Between them, the two produce more than 70 per cent of the primary metal at home. The public-sector Bharat Aluminium Company (Balco) makes 16 per cent of the 5.5 lakh tonnes of primary aluminium produced in the country.
Indian Aluminium Company's (Indal's) share of the primary-metal output is 7 per cent at 38,600 tonnes, even though its market share is almost double. The company imports almost half of its primary-metal needs to be able to produce more than 67,000 tonnes of semi-fabricated products. The union ministry of mines, which told the consultative committee of parliamentarians last month that it was committed to protect the interests of Nalco and Balco, should logically recommend an upward revision of the duties. "The two major public-sector undertakings in the aluminium sector, while continuously making profits, are nevertheless, functioningunder multiple pressures of a more competitive environment, where domestic prices are impacted by volatile LME prices, and a likelihood of a further drop in customs duties over the medium-to-long term,'' the ministry paper said.
In the last seven years, the import tariff on aluminium has dropped from 100 per cent to about 30 per cent. Imports more than doubled from 0.73 lakh tonne in 1993-94 to 1.58 lakh tonnes in 1996-97, and were probably a little higher last year. The primary-metal producers have not been hit by the flood of imports at crashing prices as yet, partly because they are among the lowest-cost producers in the world and partly owing to the simultaneous rupee depreciation. A further cut in duty should just about tilt their apple-cart.
Yet, the prevailing uniform rate of customs duties on primary metal and finished products like extrusions and semi-fabrications will hit the smaller manufacturers below the belt. ``There is a dichotomy,'' says Utkal Alumina chief executive SH Azad. ``The primaryproducers would like to guard against imports, but downstream units will be hit by a customs-duty hike on primary metal.'' The former Balco chairman and managing director is now an impartial member of the ringside, since Utkal Alumina does not intend to either import or produce primary metal. The joint venture between Indal and Norsk Hydro will mine bauxite and export alumina. The customs duty on aluminium is at present a uniform 20 per cent, which works out to an effective duty of 41 per cent after adding on the two special import duties (of 2 per cent and 3 per cent) and the 4 per cent countervailing duty. The effctive duty on aluminium scrap, imported by small utensil-makers and Indal (the sole owner of a recycling unit), works out to 21.15 per cent, after adjusting duty drawback for exports.
An identical import-duty structure for primary metal, semi-fabricated products and even scrap inconveniences all segments of industry. ``Ideally, the maximum duty should be on semi-fabricated products and the dutystructure should taper down to primary products,'' says Azad. That way, primary-metal imports become cost-effective for smaller downstream aluminium units like semi-fabricators, extrusion units and foil manufacturers. The problem with the smaller players in the aluminium market is that their voices usually get drowned during lobbying time. The bigger lobby of the primary-metal producers usually takes it all.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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