Low Gear

India’s basic materials industries refuse to mimic the fast growth pace that has occurred in China in the past two decades.

September 10, 2013
Brian Taylor

Within a few days of each other in the summer of 2013, two long-proposed steel mill projects in India were announced as being cancelled indefinitely by the major steel companies involved. South Korea’s POSCO had spent several years attempting to build a proposed $3.5 billion steel mill in the Indian state of Karnataka before calling it quits in mid-July. Less than a week later, Luxemburg-based ArcelorMittal’s CEO

Lakshmi Mittal, who was born in India, announced that a proposed new massive steel mill in the Indian state of Orissa also was being cancelled.

Both companies cited difficulties in acquiring land and getting project approvals and permits, pointing to what is often a recurring theme when multi-national companies attempt to conduct business in India.

For the foreseeable future, the way metal, paper and plastic is produced in India seems likely to remain fragmented, presenting opportunities for recyclers and traders to sell smaller-volume shipments to a large number of potential buyers. 

A Respectable Pace

In the first six months of 2013, India produced 39.6 million tonnes of steel, up 2.5% from the 36.8 million tonnes produced in the first half of 2012.

It is a continuation of the steady growth pace of Indian steelmaking that has been in place for most of the past two decades, and it is a pattern similar to those experienced in the production of other metallic and nonmetallic basic materials in India.

At the 2013 Paper Recycling Conference Asia, held in Shanghai in late May, speaker P.R. Ray of Esskay Impex said India produced about 10 million tonnes per year of paper, with forecasts predicting that number will grow to as much as 14.2 million tonnes by 2025.

Ray also noted that some 37.8% of the raw materials consumed by India’s paper industry consisted of imported recovered fibre. By 2025, said Ray, India will require some 5 million tonnes of imported recovered fibre each year.

Some of India’s basic materials producers are part of global conglomerates, including aluminium producer Hindalco-Novelis, part of the Aditya Birla Group, and Tata Steel, a subsidiary of the Tata Group.

Co-existing with these giants are many smaller companies located throughout India’s 35 states and territories that may operate one paper mill or one metals foundry. Recovered fibre trader Pankaj Chowdhary of London-based Reliance Fibres Ltd., speaking at the 2013 Paper Recycling Conference Asia, said more than 500 paper mills in India are managed by a large number of companies in a very fragmented market.

A Foundry Mosaic

There is no shortage of destinations in India for metals recyclers around the world seeking to export small lots of scrap.

The Foundry Informatics Centre of the Institute of Indian Foundrymen (IIF, www.indianfoundry.org) says more than 4,500 foundries are operating in India, producing some 9.9 million tonnes of metal castings each year.

The organisation counts among its members producers of “ferrous, nonferrous, aluminium alloy, graded cast iron, ductile iron and steel” castings used “in automobiles, railways, pumps, compressors and valves, diesel engines, machinery, aero and sanitary pipes and fittings” and other applications.

Shippers of containerized ferrous scrap may be glad to read that “iron castings have the major share [at] approximately 68% of total castings produced.”

The IIF says most of these foundries tend to be small in scale, with approximately 85% of the 4,500 foundries “classified as small-scale units, 10% as medium and 5% as large-scale units.”

While the foundries are spread throughout India, the IIF also says there are regional “clusters” that are “known for catering to some specific end use markets.” As examples, the IIF says the Coimbatore cluster in southern India is noted for pump castings, the Kolhapur and the Belgaum clusters on India’s west coast are known for automotive castings and the Rajkot cluster northwest of Mumbai is associated with diesel engine castings.

Estimates on the number of metals foundries in India range from 4,500 to 7,000. The Institute of Indian Foundrymen estimates some 4,600 foundries are producing about 9.9 million tonnes of castings annually. This figure does not cover production at steel mills or at most nonferrous smelters and refineries.

The growth of India’s industry (and its scrap materials consumption) has not occurred at a pace that has upended the commodities market, but it has created opportunities for recyclers and traders who have forged connections to the Indian subcontinent.

As it has in so many parts of the world, scrap trading in India often has been a family business, though often the families involved operate one of the paper mills or foundries consuming the purchased materials.

Plastic scrap trading veteran Surendra Borad of Gemini Corp. NV, Antwerp, Belgium, says trading with India in that industry sector also involves the ability to obtain and hold onto one of the few approved plastic scrap import licenses.

“The policy for import of plastic scrap into India remains the same—no new licenses have been issued in the recent past,” says Borad. “The few companies who have the appropriate licenses are the only ones who are still able to import plastic scrap into India.”

He says establishing successful trading links with India involves a combination of relationships and pricing. “The trade used to be based more on relationship than price. However, over time, with easy access to trade information over the Internet, the business model has now become based more on price.”

This Year's News

The steel mill project cancellations reinforce that India is not about to mimic China by bursting forth with tremendous leaps in basic materials production.

After seven months of 2013 had passed, Borad says, “There is no significant change in demand for scrap material. The trend in 2013 remains the same as that of in 2012.”

The political and legislative climate in India often is cited as a damper on fast industrial production growth, as is the state of the nation’s transportation and energy infrastructure.

Recovered fibre trader Chowdhary noted in his presentation that containers of scrap materials can face a long and difficult journey with severe weight restrictions once they hit India’s road network, and he referred to India’s customs agency as “a huge bureaucracy.”

India’s sea ports also do not garner rave reviews. An August 2013 article in The Economist notes that “big shipping lines do not want to deal with India’s customs regime [or] their ships are too big for the country’s ports.”

Despite the fact that it is recovering from several years of conflict and turmoil, shippers have begun to prefer trans-shipping through Sri Lanka, with The Economist estimating that some 15% of containers bound for India now move through Colombo, Sri Lanka.

A Chinese firm was a key investor in the Colombo port expansion, with its investment likely “partly based on the idea that India’s ports will never be world class,” writes The Economist.

India’s unwillingness to seize land or take other actions to enable large projects to come together quickly has been frustrating for those who believe such investments will help the country grow at a faster pace. At the same time, it has served to protect smaller, local basic materials businesses that otherwise might find themselves uncompetitive with larger facilities.

Another recent government action, a 2.5% tax on imported scrap metal, has affected scrap traders. The Institute of Indian Foundrymen (IIF), Kolkata, has expressed its opposition to the tax, as has the Bureau of International Recycling (BIR), Brussels.

At the 2013 BIR World Recycling Convention in late May in Shanghai, BIR International Trade & Commerce Chair Robert Voss listed India as one of about a dozen nations that had been contacted by the BIR because of a recent “protectionist” measure—in this case the 2.5% import duty.

More recently, in late July, IIF Energy and Environment Committee Chair G S Agarwala pointed out the tax is harming foundry operators relevant to metals importers. “The 2.5% duty imposed on import of metal scrap recently would adversely impact the Indian manufacturers, while semi-finished and finished goods produced from scrap when exported from Thailand and Malaysia are allowed duty free,” Agarwala told an Indian news service.

In a nation where business costs tend to accumulate and take many forms, it is more unwelcome news for traders and basic materials producers.

The author is editor of Recycling Today Global Edition and can be contacted at btaylor@gie.net.