A government working group has recommended removing the 2.5% import duty on aluminium scrap to support domestic manufacturers. The proposal aims to fix an inverted duty structure where raw material costs remain high while finished goods face zero-duty competition. This move could help secondary aluminium producers manage rising global prices.
A joint working group operating under India's Mines Ministry has finalized a recommendation to eliminate the 2.5% import duty on aluminium scrap. The proposal, intended to improve the competitive position of domestic secondary aluminium manufacturers, is set to be submitted to the Finance Ministry for review in the coming weeks.
Correcting the Inverted Duty Impact
Domestic players, ranging from small recyclers to large-scale rolling mills and auto-component manufacturers, have long struggled with an inverted duty structure. In this scenario, companies must pay a 2.5% duty on imported scrap, which serves as their primary raw material. Simultaneously, finished aluminium products are imported into India from countries under free trade agreements—notably within the ASEAN region—at zero or reduced duties. This pricing gap makes it difficult for local firms to compete on cost.
By removing the duty on raw material, the government aims to support value-added manufacturing within India. Aluminium is currently the only non-ferrous metal subject to such an import levy, making the proposed change a focused effort to align aluminium trade policies with other industrial metals.
Global Price Pressures and Supply Outlook
Secondary manufacturers are operating in a challenging environment characterized by volatile commodity prices. London Metal Exchange (LME) prices for aluminium have risen sharply, moving from a range of $2,300 to $2,600 per tonne in early 2024 to levels exceeding $3,800 per tonne by mid-2026. This 30% to 35% increase has squeezed profit margins across the sector, particularly for firms with high reliance on imported feedstocks.
India currently relies on imports for a significant portion of its scrap requirement, with annual volumes between 1.6 and 1.8 million tonnes. Projections suggest this could climb toward 2 million tonnes this fiscal year. Sourcing this material is becoming increasingly difficult as global supply chains tighten. Several Western nations, including the U.S. and those in Europe, are focusing on domestic recycling to meet their own sustainability targets, potentially reducing the volume of scrap available for export.
Investor Monitorables
For investors monitoring the metal and auto-component sectors, the key development will be the Finance Ministry's final decision on the duty removal. While the proposal aims to lower raw material costs, the actual financial benefit will depend on whether companies can pass on these savings or if they must use them to defend market share against imported finished goods. Investors may also track whether the government implements any quality or sustainability standards alongside the duty removal, as the demand for low-carbon, recycled aluminium continues to rise globally.