Indian aluminum producers including Hindalco Industries and Vedanta Ltd. are boosting sales to Japan as U.S. sanctions against Russia’s Rusal and import tariffs shake up traditional supply routes.
India’s product has generally not been regarded as high enough quality by Japan’s demanding buyers, who have preferred top-tier producers like Rio Tinto , Alcoa and South32 as well as United Company Rusal.
However, imports of aluminum ingot from India doubled in the first eight months of 2018 from a year ago, Japanese trade data shows, while imports of alloy — which include higher-value products — surged elevenfold off a tiny base.
“Because of the sanctions, consumers would like to ensure some security of supply, so they’d like to prefer multiple suppliers instead of one supplier,” said Samir Cairae, chief executive of Vedanta’s diversified metals business in India.
The increased trade is a blow to Rusal, the world’s second-biggest aluminum producer, which accounted for about 20 percent of Japan’s imports of both aluminum ingot and alloy in 2017 but which has been hit by U.S. sanctions.
Customers globally have had to scramble to find alternative sources of metal even after the United States eased sanctions restrictions for some customers, and they were likely to permanently diversify supply chains, a source at a Japanese trading house said.
“Many of their customers are reluctant to order the same amount of supplies that they have bought in past years for next year even if the U.S. sanctions are lifted,” the trader said.
Japanese trading houses such as Mitsubishi Corp. have been aggressively importing supplies from India as well as other countries to help customers diversify supply, trading sources said. Mitsubishi declined to comment.
Products from India are mainly refined ingots rather than value-added products such as billets and slabs, said a second trading house source. Substitute material for Rusal’s higher quality products has come from the Middle East and Malaysia.
However, Indian metal is winning growing acceptance and is also being sold at a discount to traditional suppliers.
“Japanese buyers are getting Indian metal for cheap,” the source said.
Japan took 59,545 metric tons of aluminum ingot in the eight months to March, double a year ago, while material from Russia fell 21 percent to 175,694 metric tons, Japanese trade data showed.
Imports of aluminum alloy from India jumped to 3,008 metric tons over the same period, while Russian imports fell 10 percent to 185,685 metric tons.
The U.S. trade actions — 10 percent import tariffs on the light metal from March and sanctions against Rusal from April — sent shock waves through the market, boosting aluminum prices to seven-year highs and pushing up costs to obtain physical metal in the U.S. domestic market.
“Stronger U.S. premiums have become incentives for smelters in Australia, which is exempt from the duties, to ship more products to the United States,” said a third trader, who sees Indian products filling the supply gap left by Rusal in Asia.
Vedanta, India’s largest producer of aluminum, sees a big opportunity in Asia, including Japan and South Korea.
Cairae said the company is focusing on ramping up exports of its value-added products such as billets, which can be used in the transport, construction and packaging industries, and wire rods.
Hindalco did not immediately respond to a request for comment.