MRAI Pushes to Scrap India's 2.5% Aluminium Import Duty

Indian secondary aluminium smelters are paying approximately $15–25 per tonne more than their Southeast Asian competitors for every tonne of scrap they import — a penalty that has persisted since India retained its 2.5% basic customs duty on aluminium scrap while regional peers moved to zero. As of July 2026, the Material Recycling Association of India (MRAI) is formally urging the Indian government to abolish that duty, arguing it is suppressing an industry that now produces roughly 2.2 million tonnes of secondary aluminium annually and supports around 700,000 jobs. The ask is narrow on paper — 2.5% is not a prohibitive tariff — but when applied to scrap traded at $600–900 per tonne on the London Metal Exchange (LME — the world's primary exchange for base metals pricing and hedging), the duty adds $15–22.50 per tonne at the border. Against typical secondary smelting margins of $50–100 per tonne, that is not a rounding error. It is 15–30% of total operating margin, before energy, labour, or logistics costs are counted.

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The structural context matters as much as the duty itself. India currently imports 80–85% of its aluminium scrap requirements — an extraordinary dependence for a sector that processes a recycled feedstock. Secondary aluminium production, which refers to aluminium produced by melting and reprocessing scrap rather than smelting primary ore, has grown from 0.85 million tonnes in FY2016 to 2.2 million tonnes in FY2026. That is a 2.6x increase in a decade, now representing around 35% of India's total aluminium consumption. Yet the raw material base remains almost entirely imported. This creates a compounding vulnerability: when global scrap prices rise, Indian secondary smelters absorb both the market price and a structural tariff penalty that competitors in Thailand, Malaysia, Indonesia, Japan and South Korea do not pay. Aluminium scrap is, notably, the only major base metal scrap in India still subject to import duty — copper, zinc, and lead scrap have all been exempted.

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To make the margin arithmetic concrete: consider a mid-sized Indian secondary smelter — a small-to-medium enterprise (MSME, meaning a business below the threshold of large integrated industry, typically with turnover under Rs 250 crore) — importing 500 tonnes of mixed aluminium scrap per month at $750 per tonne CIF Mumbai (CIF — cost, insurance, and freight included in the quoted price, with the seller bearing shipping risk to the destination port). At 2.5%, the basic customs duty adds $18.75 per tonne, or $9,375 per month. Annualised, that is $112,500 — roughly $112,000 in additional input costs that a competing Thai smelter operating on the same scrap grade does not incur. The Thai operator can offer downstream buyers — auto parts manufacturers, packaging converters — a lower ingot price, win the contract, and still earn the same operating margin. The Indian MSME either absorbs the cost and compresses its margin below sustainability, or prices itself out of export-competitive downstream markets.

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On the buy side, the pressure concentrates most acutely at MSME scale, where hedging instruments are typically unavailable and procurement is conducted on spot terms. A large integrated Indian aluminium producer — such as Hindalco's secondary operations or a major trading group with derivatives access — can partially offset input cost volatility by using LME aluminium forward contracts (agreements to buy or sell at a fixed price on a future date) to lock in a spread between scrap input cost and finished alloy output price. This hedge cannot neutralise the structural tariff disadvantage, but it provides planning certainty. For a smaller regional smelter without that access, the practical equivalent is fixing bilateral supply contracts with scrap aggregators at a price ceiling for three to six months, and diversifying procurement across multiple origin geographies — UK, European Union, Middle East — to reduce dependency on any single corridor.

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On the sell side, the calculus runs in the opposite direction from an unexpected geography: the United Kingdom. UK aluminium scrap exports rose 9% year-on-year to 217,611 tonnes in just the January–April 2026 period, even as the UK government targets 6 million tonnes of domestic scrap recycling capacity by 2035 to serve an anticipated 8 million tonnes of demand. Currently, imports cover only about 27% of the shortfall created by those exports — meaning substantial UK scrap volume is flowing outward, primarily to Southeast Asian buyers operating under duty-free conditions. If India removes its 2.5% tariff, it becomes a credible competing destination for that material, and UK scrap aggregators and export merchants gain a new buyer pool. The route shift — UK ports to Indian west coast ports via the Suez Canal, approximately 22–26 days on a standard bulk or breakbulk vessel — is commercially viable at current freight rates if the tariff friction is removed.

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The critical caveat that the duty debate tends to obscure is one of grade and specification, not just price. The bulk of globally traded aluminium scrap — including the UK volumes flowing to market — is mixed-grade or zorba (a shredded mixed aluminium scrap category containing multiple alloys, common in post-consumer recycling streams, requiring further sorting). India's growing automotive sector and packaging industry increasingly require high-specification alloys — 6xxx series for structural parts, 3xxx series for packaging — that cannot be reliably produced from unsorted mixed scrap without sophisticated sorting and blending infrastructure. That infrastructure is largely absent at MSME scale in India. Duty-free access to zorba does not automatically translate into ingot that meets a Tier 1 automotive supplier's alloy specification. The real competitiveness gap is not just the $18/MT tariff — it is the absence of sensor-based scrap sorting lines, eddy-current separators, and alloy-specific melt management that large integrated operators in South Korea and Japan have invested in over decades.

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For observers tracking whether the MRAI's campaign generates concrete policy movement, the most actionable signal is the Indian Union Budget cycle. India's Union Budget — typically presented in February — is the primary legislative vehicle through which customs duty changes are enacted; supplementary notifications through the CBIC (Central Board of Indirect Taxes and Customs) can also adjust rates outside the budget window. Watch the CBIC tariff notification register for any amendment to Customs Tariff Heading 7602 (unwrought aluminium waste and scrap) between now and February 2027. Simultaneously, monitor LME aluminium scrap assessments published by Fastmarkets and the Metal Bulletin on the zorba and Taint/Tabor (a higher-purity cast and wrought aluminium scrap blend) indices — if the India-Southeast Asia price differential on those grades widens beyond $25/MT, the trade route arbitrage becomes self-executing regardless of formal policy change, as informal re-export and triangulation through free-trade partners intensifies.