Macro Economy

India’s aluminium makers win Japan sales in market shake-up

Reuters TOKYO/NEW DELHI | Updated on October 09, 2018 Published on October 09, 2018

India's export of aluminium ingot to Japan has doubled in the first eight months of 2018 (file photo)

Indian aluminium makers including Hindalco Industries and Vedanta Ltd are boosting sales to Japan as US sanctions against Russia’s Rusal and import tariffs shake up traditional supply routes.

India's product has generally not been regarded as high enough quality by Japan's demanding buyers, who have preferred top-tier producers like Rio Tinto, Alcoa and South32 as well as United Company Rusal.

However, imports of aluminium ingot from India doubled in the first eight months of 2018 from a year ago, Japanese trade data shows, while imports of alloy—which include higher-value products—surged 11-fold off a tiny base.

“Because of the sanctions, consumers would like to ensure some security of supply, so they'd like to prefer multiple suppliers instead of one supplier,” Samir Cairae, Chief Executive of Vedanta's diversified metals business in India, told Reuters.

The increased trade is a blow to Rusal, the world’s second-biggest aluminium maker, which accounted for about 20 per cent of Japan's imports of both aluminium ingot and alloy in 2017, but which has been hit by US sanctions.

Diversifying supply chain

Customers globally have had to scramble to find alternative sources of metal even after the United States eased sanctions restrictions for some customers, and they were likely to permanently diversify supply chains, said a source at a Japanese trading house. “Many of their customers are reluctant to order the same amount of supplies that they have bought in past years for next year even if the US sanctions are lifted,” the trader said.

Japanese trading houses such as Mitsubishi Corp have been aggressively importing supplies from India as well as other countries to help customers diversify supply, trading sources said. Mitsubishi declined to comment.

Products from India are mainly refined ingots rather than value-added products such as billets and slabs, said a second trading house source. Substitute material for Rusal’s higher quality products has come from West Asia and Malaysia.

However, Indian metal was winning growing acceptance and was also being sold at a discount to traditional suppliers. “Japanese buyers are getting Indian metal for cheap,” the source said.

Japan took 59,545 tonnes of aluminium ingot in the eight months to March, double a year ago, while material from Russia fell 21 per cent to 175,694 tonnes, Japanese trade data showed. Imports of aluminium alloy from India jumped to 3,008 tonnes over the same period, while Russian imports fell 10 per cent to 185,685 tonnes.

Sanction shock waves

The US trade actions—10 per cent import tariffs on the light metal from March and sanctions against Rusal from April—sent shock waves through the market, boosting aluminium prices to seven-year highs and pushing up costs to obtain physical metal in the US domestic market.

“Stronger US premiums have become incentives for smelters in Australia, which is exempted from the duties, to ship more products to the United States,” said a third trader, who saw Indian products filling the supply gap left by Rusal in Asia.

Vedanta, India’s largest producer of aluminium, sees a big opportunity in Asia including Japan and Korea. Cairae said the company is focusing on ramping up exports of its value-added products such as billets, which can be used in the transport, construction and packaging industries and wire rods. Hindalco did not immediately respond to a request for comment.

Published on October 09, 2018
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