Middle East conflict disrupts scrap supplies to India's aluminium producers, raises costs

Scrap prices have jumped by nearly 30% since the Iran conflict began earlier this year, executives said, squeezing margins and depleting inventories.

New Delhi: India's secondary aluminium ​producers, which rely on imported scrap, are facing shortages as the Middle East conflict disrupts supplies and drives up costs that are likely to be passed on to ⁠automakers, industry executives said.

India, one of the world's largest aluminium scrap importers, produces ⁠nearly half of its 4.2 million metric tons of ‌aluminium through its secondary sector. ​The country depends heavily on scrap from the European Union, the US and the Middle East, which accounts for about 30 per cent of shipments.

"Various units are running at lower capacities and there are production cuts of 20-40 per cent," said ​Jayant Jain, managing director at G. ⁠R. Metalloys, a leading producer based in the western city of Ahmedabad.

Scrap prices have jumped by nearly 30 per cent since the Iran conflict began earlier this year, executives said, squeezing margins and depleting inventories.

"There ⁠is a ‌hand-to-mouth situation in scrap plants because of shortages and price increase," said Sandeep Jain, managing director at Sunalco Alloys, adding ‌that most companies have exhausted stocks.

The strain is expected to ripple through to the ⁠auto sector, dominated by companies such as Maruti Suzuki, Tata Motors, Mahindra & Mahindra and Hyundai Motor India, which together ‌consume about 60 per cent of domestically produced secondary aluminium.

"Due to ‌the squeeze in scrap supplies, prices have been impacted, which will ‌eventually be passed on to carmakers and ultimately, the buyers," ‌said Dhawal Shah, managing partner at Metco Ventures.

India's auto industry body warned earlier this month of potential production disruptions, as well as higher input, fuel and freight costs due ⁠to the ⁠Middle East conflict.

Secondary producers are also grappling with a 2.5 per cent import levy on scrap, which executives say is exacerbating cost pressures. A recyclers' body has sought intervention from the Prime Minister's Office to remove the tax, Reuters reported last week.

The government is studying the industry's request, Mines Secretary Piyush Goyal said.

A European industry lobby group has also asked ​India to exempt a 10 per cent import duty on glass bottles and ​aluminium cans amid shortage fears linked ​to the Iran war. The conflict has already caused a shortage of Diet Coke, which ​is sold only in aluminium cans in India.