Refined interests

With a scarcity of copper ore resources, India is importing greater amounts of copper and brass scrap to help feed its refineries and mills.

The urbanization and massive infrastructure spending in China has been the predominant factor in global metals markets, including scrap markets, throughout the 21st century.

Although China’s metals sector remains the world’s powerhouse, the year 2015 may see India eclipse China in GDP growth, a reflection of India’s emergence as a market driver in its own right.

Overseas scrap trade with India does not always go smoothly, as a sudden change in customs inspection procedures in the first half of 2015 helped to demonstrate.

However, for red metal scrap recyclers and traders positioned along advantageous freight routes and with knowledge of the Indian market, increased commerce with India may well be in the cards.
 

Mixed fundamentals

India’s ability to urbanize or build large infrastructure projects as rapidly as China is widely regarded as unlikely, with both its political system and its culture differing starkly from its neighbor to the north.

GDP and industrial growth, however, is occurring in India, and along with that its demand for copper. Furthermore, its ability to mine its own copper ore is limited, making scrap-based secondary production an important option.

A report on the CapitalMarket.com website says India’s “domestic production of concentrate accounts for only 4% of [its] total domestic requirement. India has very limited known reserves of copper ore exploitable for copper production.”

While this situation lends itself to a secondary copper sector that should thrive, the report’s author says India’s tax situation provides considerable disincentives.

An import duty on copper scrap, currently at 2.5%, puts India at a disadvantage when competing for scrap on the global market against China, where there is no such tariff.

Other taxes within India also create a “black market” aspect to the secondary metals industry, according to the report’s author. “In India, the secondary producers of copper can be divided into two categories: an organized sector and unorganized sector. The unorganized sector procures copper scrap from kabaris [scavengers] and mostly conducts their business without paying any taxes. The organized sector [thus] find itself in a disadvantageous position.”

Nonetheless, India’s secondary metals producers remain hungry for scrap, as noted by the Metals Recycling Association of India (MRAI). The MRAI says that in India’s 2013-2014 fiscal year, it imported 0.95 million tonnes of nonferrous metal scrap, a figure that grew to 1.1 million tonnes in 2014-15, representing a 15% increase in just one year.

Sharing a subcontinent

With some 1.25 billion people, India attracts plenty of attention on its own from recyclers and basic materials producers around the world.

As large and influential as it is, however, the nation shares what is sometimes referred to as the Indian subcontinent with several neighboring nations, some of which present considerable recycling opportunities of their own.

The other nations considered to be part of the Indian subcontinent are (in descending order of population), Pakistan, Bangladesh, Nepal, Sri Lanka and Bhutan.

The India-based Steel Mint Group, organizers of the “Steel & Raw Materials Conference – Emerging Markets” event, predict Bangladesh is on its way to becoming the fifth largest ferrous seaborne scrap importer in Asia.

Steel Mint’s researchers say new investments in steel production in Bangladesh have it poised to crack the list of top five ferrous scrap importers in Asia, which currently consists of South Korea, India, Taiwan, Vietnam and China. (Steel Mint presumably considers Turkey as part of Europe.)

China appears to be moving toward closing its scrap deficit while several investments in Bangladeshi steel production will come online in the next few years. Thus, “Bangladesh has a high potential to replace Vietnam and China in coming years, provided steelmakers operate at optimum capacities after the planned expansion program,” writes Steel Mint.

According to Steel Mint, Bangladesh currently imports approximately 600,000 tonnes of ferrous scrap each year, but when its new mills and furnaces come online that figure could increase to 2.5 to 3 million tonnes annually.

The future of steelmaking in Bangladesh will be among the topics at the “Steel & Raw Materials Conference – Emerging Markets” event, which takes place 11-12 December 2015 in Chittagong, Bangladesh. More information on that event can be found at http://events.steelmintgroup.com.

“Millions of tonnes of nonferrous scrap are recovered annually and used by smelters, refiners, ingot makers, foundries and other manufacturers,” says the MRAI on its website. The group estimates that 30% of India’s copper production is made from melted red metal scrap.

Despite the considerable appetite, metals recycling rates within India are among the lowest in the world, sometimes estimated in the 25 to 30 percent range for steel, aluminium and even copper. The domestic industry largely remains the province of the kabari scavengers, with few capital-intensive large-scale scrap operators at work within India.

This presents an opportunity to traders who wish to sell into the Indian market.
 

On the doorstep

Positioned a short ship’s voyage across the Arabian Sea, the Middle East nations of the Gulf Cooperation Council (GCC) possess both a scrap surplus and a favorable freight situation with the Indian subcontinent.

The construction and infrastructure projects of Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain and the other GCC nations have thus provided a steady source of scrap to help overcome India’s raw materials deficit.

“Demand from India for red metals has always been a driving force for the Middle East scrap market, especially for high-grade copper,” says Riz Shaban, general manager of Dubai-based Lucky Recycling Ltd.

G. Thiyaga Rajan, general manager of operations at Bahrain-based Crown Industries, says proximity is a key advantage for GCC nations. “A vessel [leaving a GCC port] reaches the Nhava Sheva or Mundra ports in India quickly, within seven days,” he comments. “Therefore, the delivery of the goods is faster than from other parts of the world.”

Those vessels often ship food, commodities or manufactured goods from India to the GCC region, meaning shippers are seeking a backhaul for the return trip. Thus, says Rajan, “Another benefit [for GCC recyclers] is cheaper ocean freight. The ocean freight from Dubai to India is zero in most cases.”

The proximity and favorable freight rates in 2015 have resulted in a continuation of the established GCC-to-India nonferrous scrap trading pattern.

Rajan portrays Indian demand for red metal scrap as stemming from two major sectors: the industrial sector (wiring, pipe, etc.) and copper and brass household ornamentation. “Historically and culturally, copper and brassware can be seen in nearly all houses in India,” he comments. “For every seasonal festival, citizens buy copper and brassware for their houses all over India. This is a huge consumption [factor] apart from the industrial sector.”

The ornamental sector remains in a steady state, says Rajan, and the industrial red metals sector is poised to gain momentum. “The [Modi] government in India has introduced the ‘Make in India’ scheme, inviting global investors” to invest in manufacturing capacity, he says.

The new projects “shall create huge demand in copper and brass raw material imports in India,” says Rajan. “The Planning Commission recommends the Finance Ministry of India to waive the import duty to zero from the existing 2.5% to boost the copper industry,” he comments. “These are favorable factors in India to justify growing demand in India for red metals.”

Both Rajan and Shaban report demand in 2015 for a variety of red metal scrap grades. “We export mostly heavy copper grades such as berry, candy, bus bar and overhead wires,” says Rajan. “Also we export honey brass, ebony and ocean. These are the popular ISRI [Institute of Scrap Recycling Industry Inc.) red metal grades we ship from the Kingdom of Bahrain.”

“We supply only high-grade copper and brass scrap to all kinds of industries, but mainly to smelters with a guaranteed copper percentage in our lot,” Shaban says in characterizing Lucky Recycling’s trade across the Arabian Sea to India. “Our buyers make semi-finished goods like pipes, plates, sheets and goods for the sanitary and household markets,” he adds.

While the market is exhibiting fundamentals favorable to increased red metal scrap exporting to India, the nation’s multi-ministry government can sometimes adhere to policies that keep momentum in check (such as scrap import duties), or it can abruptly enact a new policy that is disruptive.
 

Safety first

During the first half of 2015, secondary metals producers in India and their overseas scrap suppliers had to adjust rapidly to a new container inspection regimen announced suddenly (and also revised later) by the country’s Directorate General of Foreign Trade (DGFT).

The DGFT was not solely responsible for the creation of the new policy, with several government ministries reportedly involved in advocating for the changes on the grounds of workforce safety.

Concerns about live ammunition and radioactive materials in particular spurred government agencies to call for a more thorough inspection routine that would demonstrate the government was taking these threats seriously.

A DGFT revised policy revealed in a 10-page document released in late May was deemed by recyclers as more practical than the initial regimen, but nonetheless entailed time and resources spent by overseas shippers and secondary metals producers in India. Shippers were urged to obtain pre-shipment inspection certification (PSIC) status with the Indian government.

“The new regulation created problems in our cycle time and ultimately resulted in higher cycle times,” says Shaban. “This is a problem for us as we don’t use bank financing. In any case, we have tried to adopt the new system, but it hasn’t worked out well for all recyclers and we are not happy with it,” he states.

“The new inspection requirement, PSIC, from the DGFT [entailed a] temporary and startup problem in the beginning to all the exporters in the GCC,” says Rajan. “Later, upon understanding it properly we adopted the new system and it works smoothly,” he adds.

Rajan’s conclusion is that the pain was uncomfortable but necessary. “Since the growing Indian market is significant to GCC exporters, [we] are willing to comply with the changes in the PSIC requirement,” he states. He adds, however, that “the cost of PSIC [compliance] increased due to the new requirement, which is a drawback to the GCC exporters.”

Stability in the regulatory environment can only help to boost the growing importance of India within the global recycling industry, where scrap processors and traders are always keen to ship materials where they are most wanted.


 

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

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