Indian trade secretary Gopal K Pillai said that the government is planning to impose a duty on Chinese imports of aluminium in order to safeguard India's aluminum industry. The Indian government is also probing shipments of other goods from China.

''A lot of items have come. We are already in discussion with the Chinese to tell them 'look, we don't mind your exporting to India… but you can't export to an extent, which can kill my domestic industry','' Pillai said on the sidelines of a conference''.

''China is a non-market economy. They have created huge capacities in their country… Where are they going to sell their products? They are going to dump it in India,'' he said.

Earlier this month, China's commerce ministry said India had started 17 trade remedy investigations on Chinese made products since October 2008. Related products include linen fabric, tires and hot rolled steel, which are valued at $1.5 billion. It has also restricted the import of steel, chemical products and textile products from China recently (See: China concerned over Indian trade probes on its exports) China had cautioned New Delhi that such moves would have a serious impact on bilateral economic and trade ties.

Pillai said the safeguard duty on aluminium from China would be imposed in one or two weeks.

"We have already investigated. Safeguard duty will be imposed," he said.

Pillai did not say how much aluminium India had imported but newspapers have reported that import of aluminium products from China more than doubled to $252.89 million in FY07-08, while in the first quarter of the current fiscal year, imports of the metal amounted to $82.74 million.
Pillai said he was worried about China dumping its surplus goods in the Indian market.

"China is a non-market economy. They have created huge capacities in their country... Where are they going to sell their products? They are going to dump it in India," he said.

China reciprocates with 5 per cent tax
In response, the Chinese government is expected to reinstate a 5-per cent tax on imports of primary aluminium it had cancelled two years ago from 1 March, 2009, as stocks in the world's top aluminium market balloon.

Traders said the tax may spur Chinese importers to cancel or delay tens of thousands tonnes of spot primary aluminium due to arrive in coming weeks.

China produces more aluminium than it needs. But Chinese aluminium prices have surpassed the cost of imports after the state reserves bureau (SRB) bought 290,000 tonnes from eight smelters in December as part of a plan to support smelters because of weak demand, spurring merchants and fabricators to import spot metal.

A trader estimated Chinese importers had contracted to import about 40,000 tonnes of spot aluminium for delivery in late February and March.

Smelter officials said rising imports would weigh on Chinese prices and nullify the SRB's effort to support the prices and smelters. Smelters, led by state owned Chinalco, the parent of Hong Kong and Shanghai-listed Aluminum Corp of China Ltd had lobbied Beijing to impose a 10 per cent tax on the imports.

Chinalco, the country's top aluminium producer, in December sold 150,000 tonnes to the SRB, which is responsible in managing and building the country's metals reserves.

Smelter officials and traders said in March, the state body may buy another 300,000 tonnes of primary aluminium as reserves. SRB may buy 300,000 tonnes to 500,000 tonnes in March and another 300,000 tonnes to 400,000 tonnes in May.

India has a production capacity of about 1.2 million tonnes per annum (mtpa), and accounts for about 3 per cent of global capacity. The capacity is split between three major players such as Hindalco, Vedanta Resources PLC (through its subsidiaries, Madras Aluminium and Balco) and Nalco.

Most aluminium producers follow pricing parity with landed costs of imports, including both freight and import duties. However, with the substantial increase in capex planned by the three majors, the domestic market could face an oversupply of the metal over the long term.

Aluminium prices have nosedived to $1,300 a tonne in January from about $3,300 a tonne in July. The average cost of production for most of global aluminium producers are above $2,000 a tonne.

In China, the cost of manufacturing was higher at $2,400 a tonne due to the higher power and bauxite costs. The average cost of aluminium production for Hindalco and Nalco was lower at $1,000-1,200 a tonne due to abundant bauxite reserves.

In the short to medium term, aluminium prices may remain depressed following fall in demand, especially from China, analysts said.