Downstream firms led by Indian Aluminium Co (Indal) have asked for a further reduction in the import duty on scrap, which they feel will translate into large benefits in terms of forex savings and improved margins.

The other faction -- the primary aluminium producers led by Hindalco Industries - have put up a stiff opposition and demanded that the duty differential between scrap and primary aluminium be brought down to zero.

In their memorandum, downstream players have said that duty on scrap be reduced to 10 per cent from 21.15 per cent at present. The finance minister had brought down the import duty on scrap from 31.7 per cent to the present rate in last year's budget following the demand that duty on scrap imports be reduced to just 5 per cent.

While downstream players say the duty reduction will in no wayaffect the fortunes of upstream players, the latter allege that the "scrap" that is being imported by some players is actually aluminium ingots broken up in smaller pieces.

According to downstream companies, scrap is imported in a crumpled, baled and briquetted form and there was no chance of it being sheared into small pieces and underinvoiced to take advantage of the 20 per cent duty on cess on scrap at any cost.

Graded aluminium scrap is usually bought at around $80 per tonne lower than aluminium ingots. Aluminium scrap, at present, constitutes just about 3 per cent of the total aluminium imports into the country and Indal's 25,000-tonne per annum unit in Taloja, Maharashtra is the only scrap-recycling plant in India.

Downstream players claim that import of graded scrap will help increase efficiencies in metal requirement and subsequently increase consumption. Modern scrap recycling is environmentally benign and requires approximately an investment of $500 per tonne installed compared to $5000 pertonne installed for primary metal, they say.

Downstream players have also suggested the introduction of a minimum scrap price in case of any unchecked flow of cheap scrap into the country. This is essential in the wake of a threat, if any, to primary producers.

It is estimated that downstream players can make a potential saving of almost Rs 250 crore on a reduced import duty on scrap for recycling purposes from an average 25,000 tonne per annum unit.

The cost benefits include the fact that an optimal modern aluminium scrap recycling plant can be viable with a 25,000 tonnes per annum capacity, whereas the minimum scale for modern aluminium smelters is 2,40,000 tonnes.Moreover, primary producers could fetch a premium over the LME with regard to high purity metal which at times are mixed with alloys for applications in certain grades of products, which do not require a high-purity metal. The need to import scrap stems from the fact that domestic scrap is not segregated and is unsuitable forrecycling.

According to industry estimates, most countries have witnessed a tremendous upsurge in recycled aluminium. For example, in Italy and Japan, recycled aluminium forms 41 and 30 per cent of the total aluminium consumption of the country. In UK and Germany, recycled aluminium accounts for about 25 per cent. Furthermore, 35 per cent of the world's consumption of aluminium is covered by recycled or reclaimed metal.

The downstream players have also called for a tiered gradation between import duties of metals and semi-fabricated items, which are ruling at 31 per cent at present. Last, but not the least, the industry has urged for a reduction of excise duty of 15 per cent to 10 per cent in line with the steel industry which has called for an effective reduction. Most of the semi-fabricated producers of aluminium are in a financial mess, and the problem has been compounded by the devaluation of the rupee vis-a-vis the dollar which has made imports prohibitive.