Aluminium Extrusion Industry Sounds Alarm Over Potential Factory Closures Amid Declining Production Rates

The Indian aluminium extrusion industry is currently grappling with significant challenges as it pushes for the removal of a 7.5 per cent basic customs duty on primary aluminium. Amidst soaring global aluminium prices, which have surged from approximately $2,200 to over $3,700 per tonne, domestic manufacturers are operating at a mere 27-30 per cent of their installed capacity, down from around 40 per cent earlier. The Aluminium Extrusion Manufacturers Association of India (ALEMAI) reports that domestic production has plummeted from 12 lakh tonnes to just 8-9 lakh tonnes, while imports have skyrocketed to 15-16 lakh tonnes, exacerbating the situation for local manufacturers.

Several critical factors are driving this decline in the industry. Supply chain disruptions, escalating energy costs, and rising raw material prices have impeded production capabilities, forcing manufacturers to consider drastic measures such as factory closures. The effective duty on primary aluminium stands at 8.25% when considering additional surcharges, placing further financial strain on local producers who argue that they are priced out of the market. The imbalance between high import volumes and dwindling local production is converting India into a trading hub rather than a manufacturing one, leading to calls for government intervention to adjust the customs duty framework.

In the short term, the outlook for traders and investors in the aluminium sector remains uncertain. Should the government respond to industry requests and abolish the customs duty, this could provide some relief to domestic manufacturers and potentially stabilize prices. However, without immediate action, the risk of further factory closures and job losses looms large, which may lead to diminished production capacity and continued reliance on imports. Retail investors should closely monitor these developments as they will likely influence both market dynamics and investment opportunities in the sector.

Source: Market Source

(Expert Note: This report was independently prepared by the Wealthova Commodities team.)