Was the Bauxite Shortage in India Artificially Created?

As part of its plan to shore up its revenues, the Indian government has decided to impose an export duty on bauxite.

Bauxite exports, duty-free so far, will be taxed at 10 percent.

Bauxite is a key ingredient in the production of aluminum, and taxing its export means giving a boost to domestic supply. The story of bauxite in India has taken an odd turn in the last year or so, after a court ban on mining in some of India’s states.

Looking at the supply/export figures of the current and last fiscal year, it is clear that some vested interests are creating an artificial shortage situation for domestic users.

Otherwise, how can one explain the fact that despite bauxite output having grown by as much as 35 percent between the April-October period of the current year, as compared to the same period in the previous year, there were still cries of ‘shortage’ from local consumers – yet bauxite exports had gone up.

In the same period, aluminum demand in India had not gone down so low as to inhibit major pickup by local producers.

The so-called domestic supply shortage has already led to one alumina refinery in Odisha run by Vedanta Resources Plc (VED) to close last December, leaving its planned US$9 billion aluminum project in limbo. Obviously, the new tax will curb this tendency and allow domestic refineries more access to local bauxite.

A report in the Business Standard stated that aluminum smelters have already welcomed the proposal to levy the 10% export duty.

Following the decision, analysts said bauxite exports were bound to turn uncompetitive, and the availability of additional bauxite would help the domestic aluminum industry increase capacity utilization.

The export of bauxite has registered alarming growth since last year. India’s bauxite exports in the first half of the current financial year stood at 0.48 million tons, a rise of 151 percent compared to the same period a year ago. China was the biggest importer at 0.11 million tons, but the new tax was bound to impact its supply.

Some analysts claimed that while India’s bauxite output grew, a lot of it remained for use in domestic smelters, and so miners were forced to export it, but not many could put forth a reasonable explanation for this.

It was only during the quarter ended December that the domestic primary aluminum manufacturing industry recorded a major shortage in the availability of bauxite. This was due to protests in tribal areas and non-renewal of mining contracts by the government.