With imports of finished aluminium products having risen over 50 per cent year-to-date, the micro, small and medium enterprises (MSME) segment is witnessing sharp margin contraction and slim hope for change in situation for the next six months.
“Margins of MSME players have dropped to 2-3 per cent, from 8-10 per cent, as the surge in finished goods is eating into our business,” Anil Agarwal, patron, Aluminium Secondary Manufacturers Association, told Business Standard.
The trade war between the US and China has led to the dumping of aluminium finished products into India from both these countries along with countries India has a free trade agreement with, such as Vietnam, Malaysia, Singapore, Japan, and South Korea.
Overall, aluminium imports have grown 21 per cent year-on-year (YoY). “So far, there are no shutdowns in the MSME segment, but there are several units that have come down to barely breaking even when the demand for finished aluminium is sizeable in the market,” said Agarwal.
Primary aluminium producers, too, have been asking for a hike in import duty on primary aluminium to 10 per cent, from 7.5 per cent, and to 15 per cent and 12.5 per cent for downstream, from 10 per cent and 7.5 per cent, respectively.
Among downstream producers (MSMEs), the thought is that if primary aluminium import duty goes up, domestic prices will also go up, but in downstream, primary metal is just a pass-through. Moreover, if duty on primary aluminium goes up, the entire chain will see revised pricing.
The domestic aluminium industry comprises 3,500 MSME players and three large primary producers —Hindalco Industries, Vedanta, and state-owned National Aluminium Company (Nalco).
The MSME players source their raw material such as aluminium ingots, billets, and wires from domestic primary producers, which is currently 14 per cent higher than what is internationally available, making it tough for the segment to compete with cheap Chinese products flowing into the country.
Currently, primary aluminium imports carry a flat duty of 7.5 per cent, while downstream products mostly carry 7.5 per cent, with some also carrying 10 per cent.