Eyes on India

Why export to India? As you all know, India is the second most populous country in the world—almost 1.16 billion people, out of which 400 million people are below the poverty line. For the unorganized sector, the very small factories, scrap is still the raw material [of choice] because they cannot afford to process virgin resin. The other thing [that influences their raw material choices] is the products that they make have to cater to a very poor market, so they need plastic scrap.

What happened in the last quarter of 2008 was unprecedented by all means. The LDPE (low-density polyethylene) scrap prices, which were prevailing at $900 per metric ton in the beginning of September of 2008, went to $280 by the middle of October of 2008. That was a drop of 60 percent to 70 percent in pricing in just three weeks. The prime resin prices followed the same path, and so did pricing for all commodities for that matter, including metals and paper.

As a result of this sharp drop, importers of containers already in transit to India were left with no choice. What was the importer supposed to do? They could fulfill the [original terms of the] contract by paying for the containers and, thus, lose a substantial amount of money and potentially risk going out of business, or they could go back to the exporters from the U.S. and other countries and say, "You guys have to do something for us, otherwise we will not be able to import plastic scrap from you anymore."

Our company and many other companies were caught between a rock and a hard place. If we agreed to give the importers the discount they wanted, then we stood to lose 60 percent to 70 percent of the cargo value. And if we didn’t, then we stood to lose the whole thing. At the same time, the demurrage and the detention costs were building up on those containers.

To put it in no uncertain terms, it was a disaster overall.

We never thought that we would see this kind of headline: "No Takers of Scrap Containers at Kandla Port" (as reported in the Times of India on Nov. 4, 2008). This port is the biggest port in India as far as importing plastic scrap is concerned. It is similar to Ningbo in China. Thirteen hundred plastic containers reached the port in October of 2008, and there were no takers.

IDENTIFYING TRAITS

What are the unique characteristics of exporting plastic scrap to India? India has traditionally been a very strong buyer of polyethylene (PE) grades. Eighty percent of the scrap that gets exported, whether from Europe into India or from the United States into India, is in the form of LDPE, LLDPE (linear low-density polyethylene) and HDPE (high-density polyethylene). The remaining 20 percent consists of all other plastics: polystyrene (PS), polypropylene (PP) and polyethylene terephthalate (PET). This is in stark difference to China, where you have overwhelming demand for engineering grades and other grades of plastic, especially PET. This is where India differs from China because there is much more demand for commodity plastics as compared to engineering plastics. In the coming years, however, we expect the demand for engineering grade scrap to increase in India.

India has traditionally been a strong buyer of post-industrial and post-commercial grades of plastic as compared to post-consumer material. This is because there is still very extensive government intervention and government control on the import of plastic scrap in India.

India cannot import any washing grades, at least not as of right now. Grades like agricultural film, greenhouse film and dirty grocery bags are not allowed to be shipped to India. But as usual, the rules are always flouted, and some containers do end up coming to India.

The other most important difference is that plastic scrap in India is not under the Indian government’s open import policy. The import of scrap can only be done by the units that are situated in SEZs (special economic zones) or EPZ (export processing zones). This means that when these companies are exporting from the country, only they can import plastic scrap into India. This is a big difference, and it’s much different in China. Plastic scrap is watched closely by the Commerce Ministry and the Environmental Ministry in India.

Now, we all know that whether or not a product gets recycled depends on if there is a market for the product. If there is no market for that plastic scrap, than that product will never be recycled.

Orders from countries like India play a vital role in increasing recycling in the United States. That is because any stream of plastic that is cross-contaminated and very labor intensive to handle can only be processed in countries like India and China because of the abundance of cheap labor. The percentage of plastic that gets recycled in this country would be much lower if it was not for countries like India and China.

There are some factors that could affect the trade of plastic scrap with India in the days to come. As the influx of plastic scrap from the United States into India continues to rise, the market share of producers of petrochemical products like Reliance Industries, which has almost 1.4 million tons of installed capacity of various types of polymers, is seriously affected. As a result, there is a strong rumor that there may be some kind of an anti-dumping duty that may be imposed on the import of plastic scrap in general by the government of India. This may result in the shutting down of plants, which will lead to layoffs within the labor force.

After the prices dipped in September and October of last year, I think the pricing recovery in plastic scrap is following a "W" shaped curve and not a "V" shape curve. By this, I mean that the prices of plastic scrap did recover during the months of January through March 2009, and then they started to go down in the month of May of 2009 before recovering again in June.

After what happened to exporters in 2008, they have become very cautious and they are becoming extra careful to make sure this does not happen to them again. They want to make sure that payment is assured now and that payment is guaranteed.

From then on, a lot of our time as an exporter [has been] consumed by making sure that we are dealing with the right people and, most importantly, that we don’t get burned again.