As aluminium makers return to profitability, plea for safeguard duty against imports likely to fail

Signs of an uptick in profitability for the aluminium sector are set to weaken domestic manufacturers’ demand for a safeguard duty on “non-alloyed aluminium ingots”.

The product is a form of cast aluminium made by pouring the liquid hot metal into a mould to solidify it, making it easier to handle and transport.

Cutting losses Domestic manufacturers had approached the Directorate General of Safeguards this April seeking a safeguards duty on imports, citing financial losses due to rising imports. The parties which had asked for a safeguards duty include Hindalco, Sesa Sterlite and Bharat Aluminium Company Ltd (BALCO). The three companies account for 71 per cent of domestic production.

According to information given by the three companies to the DG Safeguards, imports of the product doubled from 100,312 tonnes in 2010-11 to 208,496 tonnes in 2013-14.

The profitability of the domestic industry has steeply deteriorated to such a situation that the domestic industry is now suffering financial losses, the companies had said.

End of financial injury According to information provided by them, domestic manufacturers incurred a loss of ₹2 lakh in 2013-14 for producing non-alloyed aluminium ingots, an improvement from losses of ₹14 lakh in 2012-13.

However, these claims of financial injury due to imports of non-alloyed aluminium imports and the financial numbers of the manufacturers tell different stories.

Profitability of the two major aluminium producers, Sesa Sterlite and Aditya Birla group’s Hindalco, improved in 2013-14 despite industry-wide demand falling around 2-3 per cent. Sesa Sterlite also owns a majority stake in BALCO.

For Hindalco, earnings before interest and taxes (EBIT) from the aluminium business improved to ₹934.27 crore in 2013-14 fiscal, a growth of 0.4 per cent. However, for the fourth quarter of FY14, aluminium business’ EBIT improved 23 per cent to ₹349.55 crore.

Similarly, Sesa Sterlite’s revenues from the aluminium business improved eight per cent in 2013-14 to ₹10,779 crore. The company’s earnings before interest, tax, depreciation and amortisation (EBITDA) from Vedanta Aluminum Ltd increased to ₹1,444 crore, a 49 per cent jump from the last fiscal. However, EBITDA at BALCO fell 10 per cent to ₹272 crore.

Improvement of EBITDA at Vedanta Aluminium was even better in the fourth quarter of 2013-14 at ₹447 crore, gaining 71 per cent over the same quarter last year.

Demand picks up Rating agencies see a further improvement in demand for aluminium in the 2014-15.

“India’s aluminium demand declined by 2-3 per cent in 2013-14 as demand from key end-users such as automobiles, power and construction together fell by around 4.5 per cent. However, in 2014-15, domestic demand is likely to improve as demand from the above mentioned sectors is expected to pick up,” said CRISIL in a note on June 24.

“In 2014-15, domestic aluminium prices are expected to increase slightly,” the note added. But, despite the positivity in business mood, manufacturers are still concerned about the lack of delays in mining licences.

Mining delays “Our aluminium plants are still running at only at around 50 per cent capacity utilisation as we aren’t able to dig out bauxite due to delays in getting the mining licence,” said an official at Sesa Sterlite.

“The positivity is only based on expectations of demand. Till things actually improve, it is difficult to say whether the improvement in profitability will be sustained.”

The volatile nature of the aluminium business is further indicated by the steep fall in manufacturers’ profitability in 2011-12 and 2012-13.

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