A policy debate that has been building in India's aluminium recycling sector has moved into sharper focus in 2026: whether the 2.5% customs duty on imported aluminium scrap should be removed, maintained, or restructured. For India's foundries — particularly the automotive casting units that depend on ADC12 and other secondary alloys made from imported scrap — this debate is not an abstract policy question. Its outcome will directly affect the cost and availability of their primary raw material input, and understanding the arguments on each side, the structural context behind them, and the likely near-term trajectory is essential for any foundry planning its procurement and cost strategy.
The Supply Context: India's Structural Import Dependence
India's secondary aluminium sector — which produces the casting alloy ingots that foundries consume — is structurally dependent on imported scrap to a degree that most market participants understand in general terms but whose scale is striking when quantified. Industry estimates from MRAI (Metal Recycling Association of India) suggest that imported scrap accounts for 80–85% of feedstock for India's secondary aluminium producers. Domestic scrap — end-of-life aluminium from vehicles, construction, packaging, and industrial processes — covers only 15–20% of secondary sector requirements. This imbalance reflects India's relatively young per-capita aluminium consumption base: with per-capita aluminium use at approximately 3.3 kg versus a global average of around 16 kg, the stock of aluminium in circulation — and therefore available for recycling at end-of-life — is simply too small to feed a secondary sector that has scaled to serve growing automotive and industrial demand. Domestic scrap availability will improve over time as consumption-stage material ages out, but meaningful self-sufficiency in scrap is, by most estimates, a mid-2030s prospect at the earliest.
What Happened in Q1 2026
Against this structural backdrop, Q1 2026 brought an acute supply disruption. Scrap import volumes fell approximately 16% year-on-year, driven by a combination of Gulf export restrictions, elevated Middle East freight and insurance costs, and competitive demand for aluminium scrap from Southeast Asian buyers. The result was a tightening of secondary alloy supply that pushed some Indian secondary producers to run at 20–40% below nameplate capacity and left others with depleted inventory buffers. Downstream, ADC12 prices — the alloy most exposed given its dependence on consistent, high-quality scrap grades — held firm or firmed further even as LME aluminium softened, as documented in trade reporting across the period. For automotive foundries, this combination of higher input costs and constrained availability created margin pressure that fell hardest on those without forward contract cover.
The Duty Debate: Two Legitimate Positions
The 2.5% import duty on aluminium scrap sits at the centre of a genuine policy tension. Recyclers and their associations — principally MRAI and ASMA — argue that the duty should be removed on the grounds that scrap is a production input, not a finished good, and that taxing it disadvantages Indian secondary producers against competitors in Thailand and Malaysia who source scrap duty-free. They argue that the duty raises landed costs, squeezes thin recycler margins, and ultimately passes through to foundry customers. Primary producers — represented by the Aluminium Association of India — take a different view: they support maintaining the duty until BIS (Bureau of Indian Standards) grade standards for imported scrap are established and separate customs codes are in place, on the grounds that removing the duty without quality gatekeeping would allow low-grade, contaminated material to enter at the same rate as prime-quality scrap, undercutting the quality standards that Indian secondary alloy production requires. The Mines Ministry has reportedly recommended duty removal; the final decision rests with the Department of Revenue.
The Foundry Perspective
For foundries purchasing secondary alloy rather than importing scrap directly, the duty debate matters primarily through its effect on alloy pricing. If the duty is removed and secondary producers' feedstock costs fall, there is at least a theoretical transmission to lower alloy prices — though in tight supply conditions, secondary producers are more likely to retain margin than pass through savings. If the duty is maintained and scrap supply remains constrained, ADC12 and other automotive casting alloys will continue to trade at elevated levels relative to LME, squeezing casting unit margins in programmes where customer pricing is fixed. The foundry sector's most practical response to this uncertainty is procurement discipline: longer-term contracts with secondary alloy suppliers to lock in prices during supply-adequate periods, and investment in alloy recovery and recycling of in-house process scrap to reduce net purchased alloy requirements.
The Longer-Term Signal
Beyond the immediate duty debate, the scrap supply bottleneck signals a structural feature of India's aluminium supply chain that foundries should factor into their medium-term planning: imported scrap availability will remain the binding constraint on secondary alloy production for at least the next decade, making Indian ADC12 and secondary alloy pricing more sensitive to geopolitical disruption, freight market movements, and Southeast Asian competition for scrap than to LME aluminium alone. Foundries that treat their alloy procurement strategy with the same rigour they apply to their casting process — systematic, data-driven, with forward visibility — will be better positioned to navigate this supply landscape than those managing procurement reactively on spot terms.