Chinese products, US scrap challenge for domestic metal companies, says Hindalco Industries Satish Pai


Satish Pai, managing director, Hindalco Industries

The current run in the aluminium space has been good and domestic demand augurs well for the domestic metal industry in FY19. However, flood of value added products imports from China and scrap from US is posing a stiff challenge for domestic metal companies. Satish Pai, managing director, Hindalco Industries tells FE’s Shubhra Tandon that dumping of metals into India due to global trade wars is a matter of concern. Excerpts:

You had highlighted possible dumping of metals into India as a concern at the beginning of the year. What is the industry demand?

Demand is that the flood of imports has to be curtailed because while the Indian market is witnessing a 12-13% growth in aluminium demand, this has not resulted in domestic players selling more. It has resulted in imports going up. On one side value added products are coming from ASEAN countries and China, so there we think the duty should be raised as well as quantitative restrictions should be put. On the scrap side, it is the (imports) coming from the US because that cannot go to China.

How much have the imports of scrap gone up by and what is the ask?

Scrap continues to come unabated in the absence of any quality standards and high duty differential of 5% against primary, which makes it cheaper. India has seen a sudden rise of 145% on a year-on-year basis in scrap imports from US, after China recently imposed 25% import duty on US scrap. And this is not going into automotive sector but into wire which is not good, into vessels used at lower levels, which is not good. So we are asking to bring the duty of scrap up because as it is there is an advantage, as you buy scrap at 20%-25% less than LME as well as you give them duty difference. So close that economic incentive and second thing is enforce the standard. Today aluminium is at 7.5% and we have asked to make it 7.5%.

What has been government response?

They are weighing the options.

What is the outlook for FY19?

Outlook is good, Indian economy is strong and the growth is also looking strong. My two worries are imports and coal availability and price.

What is the update on value added and downstream investments. The growth in VAP is flat this quarter?

We are continuing with those investments. However, growth is flat this quarter because we are kept down by the Chinese imports coming in. Domestic market is heavily competitive right now in the downstream side because of these imports. So what we are doing instead is exporting primary metal — 60% of our metal is getting exported because we are not being able to sell locally, which is where we make more money.

How long do you think this trend is going to continue and what has been the impact on Hindalco?

It depends on how and when this trade war gets sorted out and what is the response from the government. Largest impact is on foil stock which goes into packaging, pharmaceuticals, and where big amount of imports are coming in. It is also in closures which goes into caps etc. Our overall rolled products per month were in the range of 25-26KT but is now at 21-22KT now. So, a good 10-15% lower than what we can be.

Revenue growth this quarter has been 5%. Would you term it satisfactory?

For aluminium I would like to see the revenue grow more. For copper, in some way copper prices going down, but TC/RC going up is good for Hindalco. So, for us, we are interested in absolute growth of aluminium which should be 10-12%. The only thing that is stopping this growth is the trade war, the general fear about the world economy, more importantly is China going to slow down.

What is the commodity price outlook?

Aluminium supply and demand has a deficit of 1.6 million, inventories are at all time lows, demand is quite strong, so everything points to the fact that aluminium (price) should go up. It’s being held down by the perception of this trade war, what impact will it have on the Chinese economy, will consumption in China go down, and then will China have to start to export more. All commodities are sort of kept down because of this worry.

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