Budget 2001 & Its Impact on the sector

• The surcharge on import duties reduced

• Surcharge on corporate tax removed

Impact

With the lowering of customs duty, imported aluminum will become cheaper. However, the impact on domestic aluminum prices will not be that much significant. This is so because domestic aluminum trades at a discount to international prices. Nonetheless, this will have an impact on realizations for domestic companies.

The reduction in the surcharge on corporate tax will benefit companies as it would have the effect of reducing their tax outgo

Balco stir may lead to increased aluminum imports

A virtual shutdown at the country’s third largest aluminum company, BALCO as a result of the strike, which is now more than two-week old, could see the domestic aluminum imports rising in the short-term. The imports are expected to rise in the next three to four months. There does not seem to be any possibility of the domestic manufacturers increasing the production to meet the shortfall. It will be difficult for other aluminum producers to step up production in the short run or divert committed exports to the domestic market to bridge the demand-supply gap. It is difficult to change production parameters and targets in such a short period and return to the original level after a few months.

A three-to-four month closure could lead to production losses of around 25,000-30,000 tones which could be met by an increase in imports and some adjustments in domestic supply. India imports 65,000-75,000 tones and exports 115,000 to 130,000 tones of aluminum every year. Major importers of the metal are semi-fabricated products and aluminum conductor manufacturers. Aluminum is also imported by those traders who get duty benefits for exporting value-added products. The country’s total annual production is estimated at about 620,000 tones and demand at 565,000-570,000 tones.

Domestic producers could hike aluminum prices to take an advantage of the situation because landed costs of imported aluminum are high compared with domestic production. There is a difference of 15,000-20,000 rupees between domestic prices and the landed cost of imported aluminum. It gives enough cushion for producers to hike prices. There is a scope to increase domestic prices by five to 1 per cent. Domestic producers revise aluminum prices twice in a month.