Let’s welcome the protectionist regime in steel & aluminium

The Trump administration is currently considering administrative action to make American steel and aluminium production more robust by imposing tariffs, taxes or restrictions on imported products. The two industries of US were in a ventilator mode in the face of foreign competition. However, in a move to bring it back to life, Trump wants to impose tariffs as high as 20% on steel, as well as potentially on other imports such as aluminium, semiconductors etc. by invoking a rarely used law from the cold war era.  Nevertheless, these moves could lead foreign markets to retaliate against American products. Chinese and European diplomats have warned Donald Trump against reported plans to restrict imports of steel and aluminium – a strategy that risks triggering a global trade war.

On the global front, the political heat is rising in the aluminium market, with a trio of industry bodies calling on the G20 to address global market imbalances resulting from China’s burgeoning output. The U.S. Aluminium Association, its cross-Atlantic peer European Aluminium and the Aluminium Association of Canada has written an open letter to the Group of 20 leading economies. According to them, China’s state-sponsored support is contributing to an unsustainable structural overcapacity that will impact growth and contribute to heightened instability until it is addressed.

However, the latest figures coming out of China on aluminium production and exports are discouraging for those who expected China would start decreasing production, if not to tackle air pollution then at least to show goodwill to the rest of the world, which more and more often puts the blame on China for global aluminium (and steel) oversupply. According to data from the National Bureau of Statistics, primary aluminium production jumped 7.4 % in June year-on-year to 2.93 million tonne, exceeding December’s record of 2.89 million tonne. Reported exports of 460,000 tonne of unwrought aluminium and aluminium products in June (mostly semi-aluminium products) are in line with the previous month

In such a scenario, protectionist approach is the only option left with the nation states to address the growing overcapacity and rock-bottom prices in global steel markets. However, the question is how that will impact Indian steel and aluminium producers? According to steel industry observers, India’s steel industry has come to rely on exports since its domestic demand had not kept pace with the increase in capacity. While some in India say the country needs ready access to global steel markets, any such protectionist move could put pressure on growth.

As far as aluminium is concerned, it will hardly have any impact since India, inspite of claiming to have 5th largest bauxite deposits in the world continues to bleed the exchequer by around 600-700 million USD year after year for importing bauxite and alumina to feed the available installed smelting capacity. In order to achieve the target of around 20 million tonne per annum alumina, with the pace at which the industry is growing / implementing new projects, it’s a long way to go even with the recently projected expansions of Nalco (1 Mtpa), Vedanta (3 Mtpa) & Utkal (0.5 Mtpa), the target appears to be non-achievable unless some drastic measures are taken to bring back the projections on track.