A Passage to India

Beginning in 1991, the Republic of India initiated a string of economic reforms that included tariff reductions, liberalization of foreign investment and exchange regimes, financial sector modernization and changes to monetary and fiscal policies. The cumulative effects of these policy changes have helped to make India a popular trade partner with the U.S.

According to the U.S. State Department, ferrous scrap and scrap metal are among America’s chief exports to India, as are aircraft and parts, advanced machinery, fertilizers and computer hardware. In fact, the U.S. Commerce Department lists India, currently ranked as the United State’s 26th largest trade partner, as one of its "10 Big Emerging Markets." While this information is certainly encouraging, insufficient infrastructure and burdensome bureaucratic procedures hamper India’s growth.

However, India still represents an emerging market for scrap materials, as long as exporters keep certain guidelines in mind.

GROWTH PATTERN. "Right now, the markets are very strong. Prices have increased significantly in India and other South Asian countries," Sam Desai of R.M. Creation, a trading company based in New York, says. Currently, Desai says, secondary commodities can be exported to India and South Asia with sufficient margin.

Kumar in part credits the relaxation of custom duties for the increase in trade with India. "In a move aimed at facilitating imports into the country, customs will allow import consignments to go through on the basis of self-assessment under the Electronic Data Interchange (EDI) systems in the very near future," Kumar says. EDI allows the electronic transmission of orders, invoices and remittance information between businesses.

But he sees other factors influencing the flow of secondary commodities to India, such as European scrap markets with suppressed pricing, allowing brokers representing Indian firms to acquire scrap metal and paper at a reasonable cost.

"The country, which is a late starter, has grown faster compared to other Asian countries. India has more potential than China in the coming five years," Kumar says of the country’s hunger for imported scrap. "The Indian local consumer market is so big."

"India has been in a steady growth cycle for the last six or seven years," an industry source based in California reports. "It’s not growing rapidly. They are taking a more natural approach to their business growth [as compared to China]. In other words, the paper mills are expanding and going from 10-ton-a-day to 50-ton-a-day mills, from 50 tons a day to 200 tons a day. In China, they went from 100-ton-a-day mills to 1,000-ton-a-day mills."

The California source explains that India is not structured to support one giant paper mill that will consume mass quantities of paper, in part because of the country’s internal infrastructure problems. India has few roads, and those it does have are teeming with traffic. "Movement inside of India is very complicated and expensive," the Californian says.

"Most of what is happening is that the current plants are either expanding or adding capacity," he says. "They still need to have small mills to service each region. The internal [freight] rate in India is too expensive to ship from one side of the country to another. They can’t put in one giant mill, basically."

Kumar says that India’s stainless steel mills similarly appear to be upgrading existing plants rather then building new ones.

Regardless of end product, India relies heavily on imported scrap material to feed its steel mills, foundries and paper mills.

"The U.S. has exported less in the last year as compared to other years because of its higher scrap prices compared to India," Desai says of stainless steel in particular. "But scrap trade between the U.S. and India is picking up again."

Kumar says that approximately 60,000 tons of the stainless steel scrap resulting from the terrorist attack on the World Trade Center has ended up in India for recycling into building materials, furniture and household utensils.

In addition to this scrap, many of the old ships bound for salvage and disposal are exported to the Indian subcontinent, he says.

"India regained its title as number one in the ship recycling industry after losing it to Bangladesh a few years ago," Kumar says. "Ship recycling has been showing signs of slowdown for the past few years. The slowdown has caused scrap metal prices to soar in the Indian market, which in turn has driven up Indian steel prices [two-fold]."

Kumar says he expects the Indian ship recycling industry to experience a jump in the coming years because of a law proposed by the European Union banning single-hulled tankers. "If passed, many of the single-hulled ships currently in service may be on their way to India for scrapping." He is concerned, however, that if the process isn’t done in an environmentally sound way, Greenpeace and other organizations could interfere, stopping the market from growing as it could. He suggests safeguards must be taken to protect both the ship dismantlers and the environment.

Desai says India is particularly hungry for 316 stainless steel, Inconel and other high-nickel alloys. "The higher alloys are more attractive to consumers than 18/8 stainless steel scrap." Desai says this preference has to do with the duty structure and the other elements found in various nickel-based alloys.

Desai adds, "Within the last few years, a lot of material in terms of stainless steel, copper and aluminum has been going to India from Dubai and from other Middle Eastern countries, Turkey, Russia and Africa."

The U.S. can increase its market share in India if the local market steadies downward a bit, Desai says. "Prices in the U.S. market seem to be jumping up everyday, and there is less of a profit margin gap for exporters."

He continues, "I would say that exporting is still taking place, but with some of the traders being cut out. Larger end users have been developing their own sister companies in the U.S. and using some of the larger trading companies in the U.S. to buy material. For example, one company was exporting around 15 containers of stainless scrap per month last year. That number seems outrageous when the U.S. market price was so high." Perhaps if the trader and his or her commission is cut out, Desai suggests, then the shipping can be deemed profitable.

"India is very rich in aluminum," Kumar says. He says it may be cheaper for smelters to use scrap, however, because electricity restrictions prevent them from running full schedules.

Kumar says that yellow brass and copper are also popular scrap imports. These metals are used in the manufacture of faucets and decorative items for the home. "They will consume almost any quantity of the yellow and honey brass," he says.

"Even on cardboard, India is a very good market," he says.

Concerning the various paper grades, the source from California says, "Where they draw from depends on what is cheaper for them, basically. They look at a longer-term approach and try to buy the same quality from the same place.

"For instance, over the law few years they’ve bought a lot of ground wood grades, news grades, but that’s been primarily from Europe because their pricing has been cheaper than the U.S. by a big margin, and their freights are considerably cheaper than the U.S., too." The West Coast source continues, "Their craft grades and corrugated, they buy some from the U.S. because the fiber strength is a lot better than [that of] the Europeans."

Material quality is one reason India likes importing from North America. "U.S. scrap material gives the best quality overall," Desai says, "Customers would rather pay a little more money and get material from the U.S."

Kumar, for instance, likes to specify that the Institute for Scrap Recycling Industries Inc. (ISRI) specs are used at all times, helping to eliminate any possible material discrepancies.

Desai also cites the importance of knowing the material in the shipment. "You definitely need to keep in mind the quality of the material. What is the vendor considering as scrap?" he says. "For example, in brass scrap, any kind of bullets or artillery or ammunition-related scrap is banned in India." Coins are also unwelcome, Desai says.

Desai recommends taking photographs of the material prior to shipping. "If there’s ever any kind of doubt when the material gets over there, you have something to back up your point," he says.

Kumar adds that the receiving port should also be an important consideration because domestic shipping within India is very expensive. Kumar says that Kandla is one of India’s best docks. "Kandla has a lot of small mills and other facilities where they are taking these materials and reworking them duty free."

Finding a trustworthy broker in India is also important, Desai says. Shipments can take a month and a half to arrive, and anything can happen in that time frame to cause fluctuations in market conditions.

To regulate his risk, Kumar likes to use direct contacts at Indian mills that follow published American Metal Market pricing.

Desai says, "The best way to export with India or South Asian countries is to go through a trading company like ours. Developing a customer base in a new country is difficult and risky," he says. "Money exchange rates, customs requirements and India’s banking system are some issues that play a very important role in doing business with India."